If you plan on starting a business, it is best if you start by owning a commercial building or a property. There’s a big difference if you own the place you want to build for your company than rent it out.
The thing is, not all entrepreneurs can afford it right away, particularly for those who are just beginning in this field. Good thing there are options for acquiring a commercial property nowadays.
One of them is a commercial real estate loan.
A commercial real estate (CRE) is very different from residential property. It is solely used for business purposes; that is why it is usually called an income-producing property.
To understand it better, examples of commercial properties are hotels, restaurants, offices, complexes, malls, and other shopping centers.
Most of the new entrepreneurs rely on CRE or mortgages to own a property because commercial properties are way more expensive than buying a residential house, which makes it very hard for regular people to achieve it.
CRE is not only beneficial to regular entrepreneurs. Some people who already own a property still purchase commercial properties to generate more profits. They sell or lease out space to collect rent from the business owners who operate within the property.
There are a lot of financial institutions that offer commercial property loans. These are banks, pension funds, insurance companies, independent lenders, private investors, and more. If you will go online and search about commercial real estate loans, surely you will also find a lot of website that offer commercial real estate loans.
But the question is, how are you going to be approved with this type of loan?
To qualify and get approved for a commercial estate loan, you have to prepare three sets of requirements. It includes business finances, personal finances, and property characteristics. Lenders want to make sure that you can pay them no matter what happens to the business that you are planning to build.
Hence, there is a thorough process in CRE loans, and most of the applicants are using the 30-year fixed-rate mortgage. This is when the borrower pays the amortization for 30 years in 7 years only. The borrower will pay monthly to complete the 30 years amortization so that they can own the property in less than 30 years.
Paying the amortization earlier will save you from paying a lot of interest that’s why many entrepreneurs are using this method. Before you plan to apply for CRE loans you have to understand that it is more expensive than residential mortgages. Thus, you have to prepare a big amount of money for downpayment.
Typically it ranges from 20% to 30% of the property cash price. Also, don’t be blown away by its interest because it will reach around 10% to 20% most of the time. However, there are still lenders who offer a lower interest, so you have to be patient in doing your search.
- SBA Loans This loan is best for business owners who want to expand their small business. If you are interested about SBA then you have to make sure that you don’t have any access to other financing institutions or else you will not be approved. They offer a lot of financial programs such as 7(a) loan program, Microloan Program and Real Estate and Equipment Loans. To apply for this loan you can go to any bank that offers SBA or you can go to a local certified development company as they finance small businesses.
- Bridge Loans If you do not want to tie yourself for a lifetime debt, then the bridge loan is for you. It is a short term loan fit for business owners who want loans with short payment terms. It usually lasts for one year only but backed by collateral like real estate. You can apply for this loan while waiting for your current commercial property to be sold. This kind of loan serves as your backed up plan for your business not to shrink now.
- Permanent Loans This is a long term loan, usually 30 years or more. Borrowers use this kind of loan to pay a lesser amount each month to pay the amortization. Most of the business owners are using this method as this is the most accessible, and it is easier to achieve, especially for new entrepreneurs who are just starting to build their business.
Starting a business requires a lot of legwork. Apart from product and service development, manpower, equipment, inventory, you will also need to find a space where you can establish it on a solid ground. Unfortunately, not all entrepreneurs have enough cash flow to fund their dream business. Good thing there are loan options that you can resort to.