If you want to purchase property for your business, you can use a commercial real estate loan. These loans are based on the property itself and your creditworthiness.
Lenders typically require high debt service coverage ratio (DSCR) 후순위담보대출 figures to qualify. They also look for adequate collateral. They may also charge appraisal, legal and loan application fees.
Types
Commercial real estate loans come in many forms and vary by lender. They are usually secured by commercial property, although some lenders may require a personal guarantee from the borrower. Unlike residential mortgages, which can be issued to individuals, commercial property loans are typically given to business entities such as corporations, limited partnerships, and funds.
Some lenders have a specialty in certain types of commercial real estate projects, such as construction or apartment building projects. Others have a specific geographic area in which they prefer to lend.
Some lenders also offer hard money commercial real estate loans, which are often used in high-risk situations where traditional financing is not available. These loans typically have higher interest rates than traditional mortgages. Another type of commercial real estate loan is a business line of credit, which is similar to a business credit card and offers revolving capital. This type of commercial loan is ideal for borrowers who are looking for a flexible financing option.
Interest Rates
Interest rates are a key factor in commercial real estate loan decisions. They vary depending on the type of property, location, and even the lender you choose. Having a high credit score is critical for securing low interest rates, as lenders view those with lower scores as higher risks.
The rate you qualify for also depends on the type of property and its expected returns. Apartment buildings, for example, typically offer lower rates than hotels.
Other factors in determining commercial real estate loan interest rates include the entity’s or owners’ creditworthiness and financial ratios such as debt-service coverage ratios. These calculations are based on the company’s ability to make its loan payments with business income. Some lenders may require that the borrower sign a personal guarantee in addition to the commercial property’s collateral. This is especially common with hard money loans, which are private investor loans that bypass traditional lending channels and focus on the property’s value instead of the borrower’s credit rating.
Requirements
Commercial real estate loans require significant financial paperwork to evaluate the borrower and the property. Lenders will want to see business tax returns, income statements and banking statements for the last 3-5 years as well as an appraisal of the property. You will also need to show your personal credit history, which can significantly impact your approval for the loan.
Unlike residential mortgages, commercial loans are typically given to business entities such as corporations, limited partnerships and funds, instead of individuals. This can make the process of getting a commercial loan more time-consuming, and often requires the owner or owners to personally guarantee the loan.
Additionally, a commercial lender will look at the debt-to-service-ratio (DSCR) of the property to ensure that there is enough NOI to cover the annual mortgage debt service. A DSCR of less than 1 usually indicates negative cash flow and is unacceptable to lenders. However, a higher ratio may be accepted for properties with more volatile cash flows.
Lenders
There are a wide range of lenders that offer commercial real estate loans. Many of them have different criteria for qualifying and loan requirements, so it’s important to find a lender that fits your business needs.
Most of these lenders are institutional investors, such as banks and credit unions, private equity firms and pension funds. However, there are also some non-institutional investors who are willing to provide CRE loans to smaller businesses, such as investment trusts and family offices.
These lenders typically focus on the property’s cash flow and use a debt service coverage ratio to measure its ability to pay off the mortgage. In addition, they may consider factors like tenant quality and lease maturity profiles.
Unlike residential mortgages, which are often secured by an individual’s personal credit score, most CRE loans are made to entities, such as corporations, limited partnerships and funds. The owner or principal of the entity is responsible for meeting the loan qualifications.