What You Need to Know About Commercial Real Estate Loans
Commercial real estate is a unique kind of real estate in a way that it is designed to produce income. The purpose of which is exclusively for business, usually comprising of hotels and apartments, retail centers, and office complexes. Financing a property in commercial real estate, including the acquisition, development, and construction is generally attained using commercial real estate lending.
The same as residential loans we are familiar with, banks and independent lenders are both active in granting loans on commercial real estate. Apart from those two, bridge loans for commercial real estate can also be made by several capital sources including private investors, insurance companies, pension funds, and the U.S. Small Business Administration 504 Loan Program.
Entities for Business - Individuals for Residential Borrowers
Residential mortgages are designed for individual borrowers or those people hoping to become a homeowner. Commercial real estate loans on the other hand are usually made to business entities. The list of business entities are corporations, partnerships, developers, and funds and trusts. Well in fact, the main reason why those entities are formed is to own commercial real estate.
There are instances when a newly formed business entity is expected not to possess any credit history or financial track record. Therefore, the commercial real estate lending institution will have to require the owners or principals of that entity to guarantee the loan. Relevant details regarding this are displayed at http://finance.wikia.com/wiki/Commercial_mortgage. In doing so, the lender successfully gets an individual who has a financial track record or credit history from who they can recover whenever there's a loan default. However, should this kind of guarantee is not required by the lender, what happens is that the only means of recovery for a loan default is the property.
Repayment
In the traditional way of residential mortgages, the debt will be repaid by way of regular installments through a pre-determined period of time. Of the many different terms, the most popular is without a doubt the 30-year fixed rate mortgage.
For their part, commercial loans are very different. They typically range from five to a maximum of twenty years and while amortization period is usually longer than the term of the loan. One example is when a lender makes a commercial loan for a term of five years with an amortization period of fifteen years. Along this line, the length of the loan term and the amortization period will certainly affect the rate charge of the lender. The terms are nonetheless negotiable, the biggest determining factor being the investor's credit strength. What happens then is that the longer the loan repayment schedule, the higher the commercial mortgage interest rates will become.
In the end, there are a lot of things to learn about commercial real estate loans. But if there is one thing you need to accept, it is the fact that it is a bit more complicated than the usual residential mortgage.
Commercial real estate is a unique kind of real estate in a way that it is designed to produce income. The purpose of which is exclusively for business, usually comprising of hotels and apartments, retail centers, and office complexes. Financing a property in commercial real estate, including the acquisition, development, and construction is generally attained using commercial real estate lending.
The same as residential loans we are familiar with, banks and independent lenders are both active in granting loans on commercial real estate. Apart from those two, bridge loans for commercial real estate can also be made by several capital sources including private investors, insurance companies, pension funds, and the U.S. Small Business Administration 504 Loan Program.
Entities for Business - Individuals for Residential Borrowers
Residential mortgages are designed for individual borrowers or those people hoping to become a homeowner. Commercial real estate loans on the other hand are usually made to business entities. The list of business entities are corporations, partnerships, developers, and funds and trusts. Well in fact, the main reason why those entities are formed is to own commercial real estate.
There are instances when a newly formed business entity is expected not to possess any credit history or financial track record. Therefore, the commercial real estate lending institution will have to require the owners or principals of that entity to guarantee the loan. Relevant details regarding this are displayed at http://finance.wikia.com/wiki/Commercial_mortgage. In doing so, the lender successfully gets an individual who has a financial track record or credit history from who they can recover whenever there's a loan default. However, should this kind of guarantee is not required by the lender, what happens is that the only means of recovery for a loan default is the property.
Repayment
In the traditional way of residential mortgages, the debt will be repaid by way of regular installments through a pre-determined period of time. Of the many different terms, the most popular is without a doubt the 30-year fixed rate mortgage.
For their part, commercial loans are very different. They typically range from five to a maximum of twenty years and while amortization period is usually longer than the term of the loan. One example is when a lender makes a commercial loan for a term of five years with an amortization period of fifteen years. Along this line, the length of the loan term and the amortization period will certainly affect the rate charge of the lender. The terms are nonetheless negotiable, the biggest determining factor being the investor's credit strength. What happens then is that the longer the loan repayment schedule, the higher the commercial mortgage interest rates will become.
In the end, there are a lot of things to learn about commercial real estate loans. But if there is one thing you need to accept, it is the fact that it is a bit more complicated than the usual residential mortgage.