If you’ve been thinking about purchasing some commercial real estate for your company, you may be wondering about the commercial loan system and how to go about securing the best terms possible. While you may have some experience in residential real estate, commercial properties tend to come with their own unique specifications. Whether you’re looking for a new corporate headquarters or an additional location for your business, there are a few important things you should know about how commercial loans work. The more you familiarize yourself with the process beforehand, the better prepared you’ll be to find the right loan for your company.
Commercial Loans Are Available to Business Entities
Before you move ahead in the loan application process, take a moment to ensure that a commercial loan is right for your situation. These loans are generally only available to certain types of business entities, like LLCs, and not to individuals. In other words, your business would technically be making the purchase.
Loans Usually Involve Liens on the Property
When you take out a loan for a commercial property, it’s essentially a mortgage loan that’s usually secured by a lien on the property itself. A lien is simply a way for the lender to be guaranteed repayment in case you can’t pay off your debt. If you don’t make your payments, for instance, the lender could seize the property. The good news is that the lien will likely be on the business property itself and not on any of your personal residential properties.
Down Payments and Repayment Terms Can Vary
In addition to a lien, you can expect to put in a down payment for a commercial property, too. These can vary in amount, but somewhere in the ballpark of 20% to 30% is typical. Additionally, the repayment schedule can vary based on the term you choose. There are some shorter-term loans of under 3 years available, but other longer-term loans can last anywhere between 5 and 20 years. Since you’ll likely be repaying in fixed installments, consider how much you can afford to be paying each month and for how long you’re okay keeping the loan around.
When you’ve been scoping out new office space or a second location for your company and you’ve considered buying your own commercial real estate, navigating the commercial loan process can seem like one of the trickiest parts of the whole process. Thankfully, it doesn’t have to be complicated! With these facts in mind, you can start researching potential loans and feel confident about finding the right one for your business.