Loans for commercial real estate are different in certain ways than loans for residential homes (i.e. mortgage loans). One important difference is the fact that they are used specifically to finance properties that generate income for a business. Most often, commercial real estate investors must form a business entity, such as an LLC, in order to qualify for a commercial real estate loan. Helena, MT area banks and other financial institutions offer these types of loans to individuals seeking to invest in these properties.
Borrowers of commercial real estate property are required by lending institutions to put up collateral or property as a lien as a prerequisite for obtaining the loan. If the borrower defaults on the loan at some point, the lender has the ability to seize the collateral or property put up by the borrower.
Real Estate Loan Calculation Process
By properly evaluating data that includes the loan amount, interest rate, amortization term, and balloon payments (if any), investors in commercial property can accurately evaluate different financing scenarios. The interest rate on these commercial property loans can vary widely depending on the lender.
The term available on a standard commercial real estate loan can be anywhere from 5 to 20 years. The actual period of amortization may last longer than the loan term itself. Balloon payments are significant factor to consider if the borrower makes these payments over the term of the loan. With the use of a financial calculator to address different scenarios, you can obtain a clear picture of the total cost of the potential real estate purchase and your monthly payment.
Creditworthiness Factor
An important factor used to determine the financial capability of a commercial or residential property investor to make the required payments on the loan is the investor’s creditworthiness. Regarding commercial real estate, lenders also examine factors for evaluating a loan request such as the income production expected from the property.
Although residential mortgages may seem less risky for banks than commercial real estate loans, lenders also understand they may have a great loan deal at hand when it involves a commercial property that is expected to do very well. As an example, a commercial property for sale may consist of many businesses that cater to wealthy tenants with a large anticipated amount of foot traffic. In this type of scenario, a lender may be eager to provide the loan with the expected financial success of the property’s businesses in view.
It is important to evaluate any commercial real estate opportunity carefully, considering the risks involved before moving forward.
