Commercial Real Estate Financing Commercial Real Estate Financing – An Overview
Author: Grant Olsen
Date posted: 10.04.23

Also known as commercial mortgage loans, commercial real estate loans are ideal for business owners who are planning to purchase real estate or expand their operations. Whether you need to buy property, upgrade your current location, or save money through refinancing, these loans offer lots of benefits when used in the right situations.

Commercial Real Estate Financing

These loans start with amounts in the neighborhood of $250,000, but they can reach amounts as high as $50,000,000 and beyond. This impressive range allows you to get the perfect sized loan for your specific needs.

 

The interest rates on commercial real estate loans can begin as low as 3.25%. This makes them some of the most affordable financing available to small business owners. Of course, the rate you qualify for will depend on your credit history, business tenure, business performance, and other factors. As for the repayment terms, you can usually plan on them lasting 20-25 years.

What Is Commercial Real Estate Financing?

At its core, a commercial real estate loan is about growth. Perhaps that involves physical expansion through the purchase of property. This type of financing can connect you with the capital to make it happen.

 

Or you might be looking for a boost to your cash flow to help propel your business forward. As long as you’ve had your current mortgage for 3 or more years, you could likely lower your monthly payments via a refinance.

 

Another option with commercial real estate financing is to pull cash from your property, so you can put the equity toward repairs, upgrades, new construction, or cash flow. This strategy allows you to leverage your equity for optimal use.

 

 

Using Commercial Real Estate Financing

While the name refers directly to the real estate aspect of these loans, they can be used for many different actions related to your business. Here are some potential ways you could put commercial real estate financing to work for you:

 

  • Moving to a larger warehouse
  • Renovating an older office
  • Building a new restaurant
  • Buying an existing restaurant
  • Opening a retail store
  • Exiting your lease to become a property owner
  • Refinancing for an extension on your payment term

 

When used strategically, commercial real estate financing can be instrumental in helping you reach your business goals.

Commercial Real Estate Financing

Applying for Commercial Real Estate Financing

The application process for these loans is fairly straightforward. As with most other small business financing, you should plan on the lender reviewing your credit score and other financials.

 

Given the nature of commercial real estate financing, there are some key factors that lenders will consider in the review process. First off, they’ll want your business to occupy at least 51% of the property. They will base the loan’s amount and interest rate off the property’s value, as it’s an asset-based loan and the property serves as the collateral.

 

Because the value of the property plays a key role in the approval process, you’ll need to make sure it is readily apparent to the lender. In cases where you’ll be renovating the property, the lender will need to assess the after-repair value to get an accurate view of its value in relation to the loan.

 

Here are some of the documents you’ll likely need to prepare before you apply for commercial real estate financing:

 

  • The purchase contract
  • The property’s blueprints
  • The property’s market analysis
  • The project budget
  • The project’s scope of work
  • Assessment of property’s current conditions
  • Business tax returns
  • Financials
  • Debt Schedule

 

As long as you have a solid plan for your property, submit all the required documentation and meet the minimum qualifications, you can be a strong candidate for a loan. Just be sure to put the necessary time in ahead of time so that your application is as detailed as it is accurate.

About The Author | Grant Olsen

Grant is a writer specializing in small business loans, leadership skills, and growth strategies. He is a contributing writer for KSL 5 TV and has been featured on FitSmallBusiness.com and ModernHealthcare.com. Grant has a B.A. in English from Brigham Young University.

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