Commercial loans are financial products that provide funding for medium size and large business endeavors. Multi-million dollar transactions are the norm in commercial lending. Typical uses of funds are for capital-intensive business projects and large real estate developments.
You will seek a commercial loan when you are trying to finance or refinance any of the following types of properties: apartment complexes, hotels/motels, regional malls, office buildings, retail and factory outlet centers, churches, golf courses, funeral homes, restaurants, hospitals, medical buildings, residential developments, agribusinesses, small and medium size manufacturing facilities, strip malls and warehouses.
These loans require a fully completed detailed loan application package that will give the lenders a full understanding of the financial standing of the applicants. You and all other principals may be required to give a personal guarantee, even if your business is a corporation, for the loan. You may also be required to due diligence fees which are the costs incurred during the evaluation of your loan proposal/project by the lender/investor.
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The terms for this kind of business loan are usually 2,3,4,5,6, 7, and 8 years. In some cases these loans may be amortized on a 20, 25 or 30-year schedule. The longer payment term schedule results in a much lower monthly payment for the loan. The downside is that at the end of the term, the unpaid balance is due in the form of a balloon payment. If you decide to accept a loan with a balloon payment at the end of the term, you must be sure that you have a workable plan to payoff the loan at the due date. The recent financial climate, with rapid changes and uncertainty of the future, will probably make it difficult to obtain a loan with a balloon payment attached.
The interest rate is typically expressed as the prime rate plus a percentage. For example: "prime + 1" means the current prime interest rate plus an additional one percent. It the prime rate is 4.25% then your loan will have an interest rate of 5.25%. The prime rate is the interest charged by the largest banks to their best largest customers.
There are short-term loans with high interest rates which are often used for property acquisitions or to overcome a cash flow shortfall. These are hard money loans and bridge loans.
The Small Business Administration offers a loan program that will allow you to finance commercial properties. This program is known as the SBA 504 Loan Program
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Learn More About Due Diligence Fees
More on Church Financing?
Commercial Construction Loan
Hard Money Loans and Bridge Loans
Working With Hard Money Lenders
Funeral Home Financing
Large Project Loans
Small Business Loans
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