Choosing the right type of financing for a commercial property can dramatically influence the success of a project.
Investors should review the various options when it comes to purchasing and developing shopping centers, multi-family apartment complexes, and other commercial real estate holdings.
Conventional bank real estate loan
Most commercial loans come from a conventional bank. Companies with good credit can access competitive pricing on financing for non-owner-occupied properties. Before taking on this type of loan, firms should prepare to make a down payment of at least 20%. Some conventional real estate loans carry prepayment penalties. Interest rates on fixed rate facilities currently tend to range from 4.75% to 6.75%.
Often called a hard money loan, this type of financing offers short-term funding for a project at a higher interest rate. The lender looks at the potential value of the property in question in addition to the business’s credit history when making a financing decision. When a firm needs capital to make a deal in advance of a potentially more favorable long-term loan, a bridge loan can provide temporary support, especially if time is of the essence.
Businesses can often access competitive financing terms by seeking a loan directly from the seller. Both companies should thoroughly review the terms of the loan documents before proceeding.
Sometimes, commercial real estate companies partner with another firm that can finance the endeavor. They must document the terms of the relationship carefully to avoid compromising the project’s success.
Creative financing options can often open new opportunities for commercial real estate firms. Negotiating this type of deal requires careful attention to the legalities involved in private financing to protect the company’s real estate investment.