A commercial real estate loan is a type of property loan that is primarily for businesses that generate income. There is a huge difference between residential loans to commercial property loans, especially since the latter is typically granted to business entities, while residential loans are taken by individual borrowers. Commercial real estate loan amortizations often have longer periods than the loan term, so even when the loan is only for 10 years, the repayment may take 15 years or more, or the borrower pays off a certain amount over the 10-year period then makes a balloon payment so the loan is paid in full. Another difference with residential loans is the loan-to-value ratio, which is the value of the loan versus the value of the property. With residential loans, the loan-to-value ratio can be as high as 100%, but a commercial real estate loan is more common in the 65% to 85% range.
Given the characteristics of a commercial property loan, who can avail of taking on this kind of loan? As mentioned, commercial real estate loans are not for individual borrowers, so if a small business owner needs a loan, his business will be the borrower. Other potential borrowers include corporations, partnerships, or trusts. Often, these business entities were put up for the sole purpose of owning commercial property, and they may not have the proper credit rating and require a guarantor – could be one or all of the owners – who provides the financial track record and credit history for the corporation in the event of loan default.
Mall developers or hotel owners are also potential borrowers of a commercial property loan. With the size of the project and the future value of the property, they are more often than not, approved for the loan, depending also on the type of loan that they take on. For chain malls and hotels, owners or corporations may take on a portfolio loan for their multi-location businesses. A portfolio loan can also be taken by landlords who lease out multiple properties to different business entities.
Business owners who wish to expand their properties can take on a line of credit loans where they borrow against their own building’s equity. This might be risky, but if the business is doing well and needs expansion, the owners often take that risk in order to achieve growth and make a higher profit eventually.
Office buildings or even medical buildings can also qualify for commercial property loans – for renovations or expansions as well. Basically, any type of property that is not to be used as a residential facility can be covered by a commercial property loan, as long as it generates income.
For business owners or corporations who are looking to avail of a commercial real estate loan, Blake Mortgage is a name that can be trusted. More than providing assistance for individuals with their home loans, Blake Mortgage has an extensive network of lending institutions that also cover commercial property loans. In business since 2002, their team aims to exceed client expectations and help out Scottsdale and the surrounding communities with their mortgage and loan needs. Book an appointment and discuss your commercial property loan options with Blake Mortgage.