Financing Help for Commercial Properties

There is a difference between financing a commercial property and a residential property. The business of financing a residential property is simple and straight forward. A Commercial property loan is a different school of thought altogether.

The similarities between the two are that the property must be properly valued, and the property owner must be able to repay the loan. Large organizations have the capacity to structure their debt in ways that are unavailable to the smaller property owner. The smaller owner is the focus here.

A relationship with a bank will be an enormous asset in acquiring a commercial property loan. When economic times are difficult, your bank will probably throw you under the bus as quickly as one with which you have no relationship. Under normal circumstances however, a longstanding history with a financial institution should offer you some advantages that might not be otherwise available.

This would include more personalized service and more attractive rates. Beyond this, the business of banks is to make loans. Shopping for the right bank is essential but don’t discount smaller institutions. They are more intimately familiar with the unique aspects of their environment and could offer some advantages in rates and service for a commercial property loan than the larger national institutions.

Items that will be considered for your commercial property loan are your financial health and the value of the property for which a loan is being sought. Other factors that will be analyzed relative to the property being financed will be as follows:

• Projected gross income such as rents
• Operating expenses including taxes, maintenance, utilities, insurance premiums
• Other common items to the type of property being financed

These factors will add up to a debt repayment ratio. These ratios vary from one institution to another. They will also vary with the state of the economy at the time and the forecast of economic conditions in the near future. If you cannot meet the ratio established by the bank, the likelihood is that the commercial property loan will not be granted. Interest rates for second mortgage loans can be daunting. The rates will probably be substantially higher than residential mortgages.