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Commercial Loan: A Brief Overview

Transitioning from the world of residential loans to commercial loans can be a tough move. Although some concepts may look the same, they may also come with different requirements and intricacies. Here is a brief overview of commercial loans to help give you the lay of the land:

• What is a commercial loan and what can it be used for?

  A commercial loan is used to finance the purchase of commercial property where business is conducted. This is in contrast to residential loans that are used to finance the purchase of residential property where people live. Whereas residential loans are usually given to individuals, commercial loans are often given to developers, or business entities, like corporations or limited liability companies.

  Commercial loans often involve hundreds of thousands of dollars to purchase large business spaces. There are four different types of properties that commercial loans are used for:

  • Commercial loans can be used to purchase office space where companies can conduct business without providing access to the general public.
  • Commercial loans can be used to purchase retail space where companies can conduct business with the general public.
  • Commercial loans can be used to purchase multifamily residential properties that consist of four or more housing units.
  • Commercial loans can be used to purchase industrial properties where companies can conduct their industrial business operations without providing access to the general public.
  • Commercial loans can also be used to acquire land (predevelopment) to be used for any of the above purposes listed.

• What are the different types of commercial loans?

  Just as there are different types of residential loans, there are different types of commercial loans that you should consider when financing your commercial real estate purchase, including conventional commercial mortgage loans, commercial balloon loans, commercial bridge loans, commercial hard money loans, commercial blanket loans, and commercial construction loans.

  1. Conventional Commercial Mortgage Loan

  A conventional commercial mortgage loan is similar to a conventional residential mortgage loan as it involves a fixed interest rate and a long term. That being said, the terms are shorter than those offered for residential mortgages -- often ranging between five to ten years. You will be required to put down at least 25% for this type of loan and interest rates typically range from 4% to 7%.

  2. Commercial Balloon Loan

  A commercial balloon loan is structured so that you only make monthly payments to cover the cost of interest rather than interest and principal. While you will have lower monthly payments with this type of loan, you will end the loan term with a large balloon payment to cover the rest of the remaining balance. These loan terms are quite short -- typically ranging between three to seven years.

  3. Commercial Bridge Loan

  A commercial bridge loan is a unique financing solution that provides you with quick access to the cash you need to make a time-sensitive commercial real estate purchase. These loans are designed to provide you with short-term financing until you can secure permanent financing. Since these loans are short-term, they usually need to be repaid within one year. Their interest rates range between 6-12%.

  4. Commercial Hard Money Loan

  A commercial hard money loan is an alternative lending solution that is given based on the value of the property rather than the creditworthiness of the borrowing entity. Since these loans come with high interest rates ranging from 10% to 18%, they should be repaid as soon as possible -- within months instead of years.

  5. Commercial Blanket Loan

  A commercial blanket loan allows businesses to combine multiple different properties into a single loan. This is a more convenient and flexible financing solution. However, they’re also risky, complicated, and difficult to get since not many lenders offer them.

  6. Commercial Construction Loan

  A commercial construction loan is used to cover the costs of building commercial structures like office parks, shopping plazas, warehouses, and apartment complexes. This type of loan allows you to use the undeveloped land as collateral. Commercial construction loans usually lead into a long-term mortgage after a term of one to three years.

• How to get a commercial loan?

  Now that you know more about some of the different types of commercial loans, it’s time to discuss how you can secure one to finance the perfect commercial property.

  Your Application

  The first step in the process is your application. You will likely need to provide substantial documentation including income statements, property information, corporation information, assets information, and more. Many types of commercial loans require that you have a credit score over 700 -- so be sure to work on improving your credit if needed.

  Your Lender

  The second step in the process involves your lender. Depending on the type of commercial loan you choose to go with, traditional lenders like big banks and credit unions may be unable or unwilling to grant you the type of loan you’re looking for.

  The good news is that you can use the internet to find lenders that offer the types of financing you’re looking for. For instance, not every financial institution will offer bridge loans but Vaster Capital is a premier bridge loan lender that has financed some of the biggest commercial real estate projects in South Florida.

• Vaster as your commercial lender

  No matter what type of commercial loan you choose, you need to make sure that your lender meets your needs. Your lender should be knowledgeable, responsive, and transparent.

  Vaster Capital is backed by two of South Florida’s largest real estate firms (Fortune International and Related), with knowledge about the ins and outs of the lending and real estate markets. We offer personalized assistance based on your unique needs. Finally, we prioritize total transparency throughout the entire process as it relates to the fees and costs of your commercial loan.

  Contact one of our loan specialists today to receive rates, payments, and costs customized to meet your needs!