All you need to know about Commercial Property Loans - Complete Overview

There are numerous types of commercial loans available. Some of them are bridge loans, construction loans, takeout loans, term loans, SBA loans, commercial property loans, etc. If we talk about Commercial Property loans, it is a different kind of loan as compared to the other property loans. It takes months for getting a Commercial property loan.

As the term suggests, this loan can only be used for business purposes since the commercial spaces are most expensive. So, they also attract more processing fees. Basically, getting a Commercial Property Loan is a tedious task. To make things clearer, a commercial property loan can be defined as a type of loan which only gets approved if you have a certain area of land owned by you (i.e. The borrower)

These types of loans can only be used for:

  • Hotels
  • Restaurants
  • Mall
  • Workplace building

The terms and conditions for commercial property loans are also very different from any other property loan. To give you better clarity about it, listed below are a few points you must take a look at-

  • Documents

The most important thing is to get all your required documents ready if they are not in place. The documents include required for the same are-

  • Tax returns
  • Address proof
  • ID proof
  • Bank statement
  • Income statement

All of the above-stated documents have to be submitted within the given time to get ahead with a commercial property loan.

  • Charges

There is also a lender’s fee involved, which is mostly 1% of the total commercial property loan amount. This is called the processing fee. Other than processing fees, it has interest rates which are mostly high in the case of commercial property loans. Then there are certain other charges like the survey fees loan applies charges which are also to be paid by the borrower.

  • Short repayment period

We usually hear that people pay the EMI's for their home loans for another 30-40 years. However, this is not the case with commercial property loans. In this case, the maximum years given for repayment are 10 years.

  • Minimum square feet required

As mentioned in the introduction that there have to be certain square feet owned by the borrower to get funds for building commercial property. How much land does the borrower have to own differs from lender to lender.

  • Penalties involved

There is always some lock-in period for the repayment of the commercial property loan, and the loan cannot be paid before that date. Also, if the loan is paid after the lock-in period, then it would result in penalties.

  • Borrower's reputation

Most of the time, the lender also relies on the reputation of the borrower of commercial property loan in the market. It gets easier for the lender to decide whether to approve the loan or not.

If you want a loan for buying an old property for commercial purposes, then it becomes a difficult task. Whereas, if you are taking the loan to buy a new property for business purposes, lenders easily tend to approve your loan.

Final Overview

There are many other things you would need to know because the rules differ from lender to lender. However, the most important ones have already been stated above. Rest of the other common factors include the lender's worthiness, bank returns and income statement of last 5 years and debt service coverage ratio.

Apart from the debt service ratio, there are certainly other financial ratios as well which are considered. All it requires from the borrower's part is a lot of patience because approving such type of loan involves a time-consuming process.

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