Commercial real estate loan is a significant component of real estate investing since large amounts of capital are involved. Leveraging through this type of real estate loan can materially alter the return profile of the investment. Purchasing a good priced commercial property with the help of a commercial real estate loan and possibly fixing it up first and then renting it out or reselling it for a profit are the options a real estate investor has.
Common uses of commercial real estate loans include the purchase of any building or land that is zoned for business purposes such as office or apartment buildings, hotels, shopping centers or small retail spaces. National standards require a commercial loan for any property with more than four units. Another usage can involve the improvement or refinancing of a commercial property, if more than 50% of the real estate is owned. As in the case of other mortgages, the lender holds a legal claim over the property until the loan has been repaid completely.
Commercial real estate loans are secured by the underlying property itself. This fact allows the lender to provide extensive amounts of capital and long repayment periods which at some instances are extended to 30 or more years. The amount availed also depends on the borrower’s credit rating as well as the income generation capacity of the property itself. Given the low implied risk the lender undertakes, commercial real estate loans come at lower interest rates. In case loan default, the lender can take full possession of the property since he has the title deed for the duration of the loan.
Usually, lenders require a large amount of information from the prospective borrowers. Providing the details of the project and demonstrating its financial feasibility along with the capacity of repaying the loan amount in a safe and timely manner are necessary for securing such a loan. Researching the internet for a suitable lender or loan can expedite the application process and eliminate many associated expenses such as broker fees.