A commercial real estate loan is a financing source that allows borrowers to purchase a commercial property, renovate an income-producing property, or refinance a real estate debt on a property they own.
Though a commercial real estate loan works a lot like a traditional mortgage loan, there are a few differences that small business owners need to understand. In this article, we’ll explain what it takes to qualify for a commercial real estate loan, as well as the advantages and disadvantages.
Qualifying for a Commercial Real Estate Loan
The first thing you need to be aware of is that every lender has its qualifications, but there are a few questions that you need to ask yourself before applying. For example:
• What is the down payment on a commercial property?
• What are the financial requirements a business must meet?
• Are your credit scores sufficient to support a low-interest rate?
When it comes to your business financials, the documentation you will need will be determined by the lender. For example, to qualify for an SBA 504 loan, you must meet the following qualifications:
• Tangible net worth under $15 million
• Average net income of $5 million for the previous 2 years
Some commercial lenders may require you to meet certain minimums, including having 2 years in business under the current owner, and $250,000 annual revenue. As you start comparing lenders, pay attention to the requirements to verify whether or not you qualify.
Additionally, you should consider traditional commercial lenders, such as banks, and online lenders. While an online lender is likely to have higher interest rates, their requirements for approval are typically not as strict.
Advantages & Disadvantages of Commercial Real Estate Loans
Below, we’ll take a look at the advantages and disadvantages of getting a commercial real estate loan.
• Lots of options
• Variety of terms
• Flexible payment terms
• Tax breaks
A commercial real estate loan offers more diversity and options than a personal real estate loan. This includes a variety of repayment terms, payment schedules, interest rates, and more. You can build a payment schedule that fits in with your business schedule and budget. Plus, there are tax breaks associated with owning property, and building equity in your property through making payments can be valuable to your business.
• Approval takes some time
• Upfront costs are high
• Approval is hard to get
• Capital loss
Of course, as with any financing option, there are some disadvantages as well. First of all, they are hard to qualify for and take a long time to process. Plus, you need stellar credit to get the best rates.
Let Us Help
If you are a business owner, ready to take the next step and purchase a new property or renovate your current one, a commercial real estate loan maybe your best option. Contact Crimstone Stone Capital Solutions to learn more and start your application process.