6 Factors to Consider Before Taking Out a Commercial Property Loan

Are you debating on taking out a property loan? Click here for six important factors you should consider before taking out a commercial property loan.

The commercial real estate industry is one of the largest in the world. Even if you look only at the United States, the commercial real estate market is worth over $1 trillion every year! Almost 4 million people in the country work in commercial real estate.

With such an enormous market out there, there are a lot of different commercial property loan options to consider. Along with choosing the right kind of property loan for your situation, there is also a lot you need to consider before you settle on a specific choice.

If you have never taken out a commercial property loan before, it can feel like an arduous process. However, by breaking the commercial property loan consideration process down into steps, you can find the right commercial property loan for you.

Read on to learn all about the top factors to think about before you take out a commercial property loan!

1. Consider Different Types of Loans

One of the most important things to start with is understanding what kind of commercial property loans are available. You can spend a lot of time investigating a certain type of loan without even realizing that another type of loan is better for your situation. You will save time in the long run if you start by understanding your different loan options.

Term Loans

Many people choose a term loan for their first commercial property loan. It is a simple loan that provides you with a lump sum of capital. You will then pay it back in regular installments over time.

In most cases, you will have five years or even longer to pay back a term loan.

There are a number of places where you can get term loans, including banks. However, banks are sometimes hesitant to offer term loans to borrowers. It is often easier to find a term loan with a commercial real estate lender or an online lender.

SBA Loans

Depending on your situation, you might also be able to use a small business administration loan. These loans are backed by the government. If you are unable to pay back this loan, then the lender can get their money back from the government.

As a result, lenders are often more willing to provide small business administration loans. They may also be willing to offer lower interest rates. However, you will have to convince the government that you should receive a small business administration loan.

This is only an option if you are taking out a loan to run a for-profit business in the United States.

Business Lines of Credit

Business lines of credit are another way you can take out a loan for your commercial property. Many people compare business lines of credit to credit cards.

However, business lines of credit offer much lower interest rates than typical credit cards. They can also provide you with much higher amounts of money.

One of the main advantages of a business line of credit is that it is flexible. You can borrow a certain amount of money and then borrow more again if necessary.

However, although business lines of credit provide lower interest rates than credit cards, they often have higher rates than other types of loans.

Bridge Loans

People who are unsure about which kind of loan is right for them sometimes use a bridge loan. Bridge loans work in the short term, providing you with cash while you figure out how you will get long-term funding. In most cases, you will need to pay back a bridge loan within a single year or even less time.

2. Expand Your Loan Options

Whatever kind of loan you decide on, you’ll have a wider variety of loan offers if you make yourself a more desirable borrower. One of the best ways to do this is to find out your credit score and look for ways to improve it.

Although it takes some time to increase your credit score, even a few weeks or months of responsible financial behavior can sometimes give it a small boost. Depending on your situation, you might also be able to give your credit score an instant boost by resolving any old debts you have in collections.

3. Find a Low-Interest Small Property Loan

Make sure to compare the interest rates between all of your commercial property loan options. Calculate the total cost of paying back each loan with its accompanying interest rate.

People are sometimes tempted to choose whichever loan provides them with money in the fastest and easiest way. However, exercising some discipline and choosing a loan with a favorable interest rate will pay off in the long run.

4. Analyze the Other Terms of Commercial Property Loans

At the same time, some borrowers place too much emphasis on the interest rate. Make sure that you consider the other terms of your commercial property loan options.

It may also be a good idea to have a lawyer look over your loan options to make sure there are no malicious clauses.

5. Decide on a Commercial Property Repayment Period

Think about whether a short-term or long-term loan is better for your situation. If you can afford it, a short-term loan will often accrue less total interest.

However, if you are confident about the long-term viability of your investment, a long-term loan might be more appropriate.

6. Find a Lender With Great Reviews

Make sure to look at the online reviews for any lender you consider before you seal the deal. You might want to make a special point of reading through some of the less-satisfied reviews.

They may reveal a lender who sometimes engages in unpalatable lending practices.

Consider the Most Vital Factors Before Getting a Commercial Property Loan

Committing to a specific commercial property loan is a huge decision that will have ramifications in the months and years to come. Some people do not enjoy finding the best commercial loan possible, so they try to rush through this part of the process. However, taking your time to do your due diligence is an investment that will more than pay off in the long run.

To learn more about how you can find the best commercial property loans for your unique situation, reach out and get in touch with us here at any time!

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