Commercial Loans for Real Estate: What You Need to Know

Expert discussing business loans for real estate

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Expert discussing business loans for real estate

Key Takeaway Table

Key Point Description
Definition
Commercial real estate refers to properties that are used for business purposes. Some examples include office spaces, commercial buildings, retail stores, restaurants, malls, warehouses, and apartment complexes.
Business Loans for Commercial Real Estate
Business loanscan help with the purchase, refinancing, development, or renovation of commercial properties. You can get business loans for real estate through both bank and non-bank lenders, with differing requirements, approval criteria, terms, and interest rates.
Requirements for Commercial Real Estate Loans
The requirements can differ depending on the lender. Traditional lenders like banks may ask for full financial and tax documents, and they may require a higher credit score. However, some lenders may ask for fewer or even no documents and may approve a loan despite bad credit and tax debt. It's crucial to find a lender that provides the right loans for your credit profile.
Benefits of Commercial Real Estate Loans
Owning a commercial property helps you diversify your income by earning rental income if you decide to lease your property or your business occupies your commercial real estate.

Owning commercial real estate can open doors for businesses. It can open avenues for rental income, or it can be a way for businesses to establish themselves at a brick-and-mortar location. Since commercial property is a major investment, businesses turn to loans to help them finance these properties.

What is Commercial Real Estate?

Commercial property is any real estate used solely for business purposes. Examples include offices, warehouses, restaurants, hotels, malls, physical retail stores, and factories. Business owners can use the property for their own operations and earn rental income by leasing the property.

Business Loans for Real Estate

Business loans for real estate are designed for the acquisition, development, refinancing, and improvement of commercial properties. Real estate business loans can be provided by various lenders. You can get a loan approved by both bank and non-bank lenders, but the rates, fees, terms, and requirements may differ greatly between lenders. The approval process may also be different, so take note of how soon you need the loan and the lenders’ credit criteria before committing to a lender.

Here are some uses for commercial real estate loans:

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Purchasing Property

One of the primary reasons for securing a commercial real estate loan is to buy commercial property. The aim could be to provide a physical space for the business or to generate income through leasing or selling the property.

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Refinancing

Businesses may seek to refinance an existing commercial real estate loan to take advantage of lower interest rates, extend the loan term, or reduce monthly payments.

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Property Development

Loans can fund the development of a new commercial project from the ground up, including land acquisition, construction costs, and initial operating expenses.

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Renovation or Expansion

Financing is often required for renovating, remodelling, or expanding an existing commercial property to increase its value, enhance its functionality, or accommodate business growth.

Benefits of Commercial Real Estate Loans

Here are some ways acquiring a commercial property through a loan can positively impact your business:

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Requirements for Commercial Real Estate Loans

The requirements for commercial real estate loans will differ from lender to lender. Banks and other traditional lenders usually ask for more documentation and a higher credit standing. However, non-bank lenders can be more flexible, which allows borrowers with outstanding tax debt or a less-than-ideal credit history to get approved for real estate business loans.

Here are some requirements you may need to prepare when applying for a commercial real estate loan:

Requirement Description
Property Details and Use
Some lenders may ask for detailed information about the property, including its location, size, condition, and how the property will be used or developed.
Financial Statements
Some lenders, typically banks, will ask for detailed financial statements, including income statements for the last 2-3 years. These documents help lenders assess your capacity to pay back the loan.
Tax Returns
Banks and other lenders will ask for tax returns to see proof of lodgment and income verification. However, other lenders will still approve loans even if you have tax debt. It’s just a matter of finding the right lender for your circumstances.
Credit Score and History
A good credit score and clean credit history for the business and its principals. Creditworthiness is a crucial factor in determining the eligibility for a loan and the interest rate offered.
Borrower's Contribution
Lenders can ask for a substantial deposit or contribution from the borrower for commercial property, generally at least 20% of the purchase price. This can also be mitigated by leveraging equity held in other properties by cross-collateralising the properties to achieve an overall loan-to-value ratio (LVR) that meets a lender’s policy.
Security and Guarantees
While there are a number of ways to structure a commercial loan the most common is with a mortgage over the commercial property that’s being financed. 1st and2nd mortgages, like those offered byprivate lenders, are also available. In almost all cases personal guarantees will be required in addition to a mortgage over the property.
Legal Documents
Lenders will ask for documents that prove ownership, zoning compliance, and more depending on the kind of loan.

Find the Right Commercial Property Loan

If you're looking for a business loan to acquire a commercial property, finding the right lender will help you get the best rates and terms depending on your needs. Loan experts can help you secure business loans of up to $50M, even with less than ideal credit history and existing debt. Talk to us today to learn more.

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