Commercial real estate loans differ from residential mortgage loans due to the fact that they are used exclusively to finance income generating properties in which businesses are operated. Investors usually must establish some type of business entity, i.e. an LLC, in order to qualify for commercial real estate loan. Kalispell banks and financial institutions offer these loans to prospective investors. Commercial property borrowers are also required by the institutions making these loans to put up collateral or property as a lien in order to secure the loan. The lender will have the ability to seize the commercial property if the borrower ever defaults on the loan payments.
Credit Worthiness
One factor used to evaluate the ability to obtain both residential and commercial property loans is credit worthiness. However, as it concerns commercial real estate, lenders also examine the potential income production of the property when evaluating whether to approve a real estate loan request.
Even though commercial real estate loans appear to be more risky than residential mortgages, lenders can benefit significantly by the potential financial windfall available through commercial properties. For instance, commercial properties may consist of a number of businesses that attract wealthy tenants along with a significant amount of foot traffic by customers. As a result, the lender in this case may have great expectation to earn significant revenue generated by the commercial property.
Calculating a Real Estate Loan
Investors can evaluate their real estate financing scenario by utilizing particular data, including the loan amount, amortization term, interest rate, and any balloon payments if applicable. The total principle on the commercial loan is represented by the loan payment. The interest rate on these loans can vary significantly by the lender.
Terms on a typical commercial loan can range from 5 to 20 years. The amortization period can actually extend longer than the loan-term. Balloon payments occur when a borrower makes payments during the course of the loan term, but then is required to make the last payment for any remaining amount on the principal. By using a financial calculator designed to evaluate the scenarios, you can get a clear picture of the cost of these real estate loans.
Commercial real estate differs significantly from traditional real estate and any opportunity must be carefully evaluated.
