The commercial real estate loans are much different as compared to the residential loans. They are lot more complicated because they carry the conditions and terms that are very different if you would compare them to the residential loans. This is one of the important reasons that many of the investors fear to gamble in the commercial real estate market.
Smaller investors of the residential real estate are actually limited to about 4 to 10 properties that are valued from hundreds to thousands of dollars before the conclusion of lenders which is the adequate risk level and there are no other loans that will be made. The loan requirements for the commercial properties can vary between the private lenders and the banks. Also, the loans are held into the portfolio of one lender can differ according to the risks that are perceived by the lenders.
When it comes to commercial bank loans, the banks would like you and your partners to have a minimum of 20 to 25 percent of the property value for the down payment. Moreover, the latest researches have also shown that most businesses have really failed because of the lack of sufficient capital in order to meet the requirements. Because of such reason, the banks usually require the business to maintain a considerable amount of cash reserve that can be sourced when the cash flow is not enough to pay for the loan payments. There is a financial requirement aside from the big down payment. A strategy that some of the commercial investors make use of is borrowing so much cash as they can, though the interest rate is high, just to provide enough capital for building the business and increase cash flow.
How to Achieve Maximum Success with Lenders
The non-bank lenders or the private lenders offer less rigorous requirements when you want to have commercial loans. Some lenders demand a lower down payment that range from 10 to 15 percent. The lenders often agree to carry such loan amount up to 30 years until the full amount is paid off. They charge a higher interest rate compared to the banks which is one to two percent much higher than their bank rates.
Figuring Out Loans
If you do the math, a higher interest rate might not appear really costly at it shows on the first time. You need to compute the cost of such higher interest rate on a certain period of the loan and compare this with the cost that you will have to pay when you get a new loan.
The presence of the private lenders is really challenging the banks on the traditional terms of the loans. The banks are a lot stricter with their requirements and the private lenders move to such bigger share since they make it much easier to qualify. When you want a smaller commercial loan or that medium loan amount, then you have to take your time so that you can find lenders who can provide you with acceptable time as well as term constraints.