How to Prepare for Applying for Commercial Real Estate Loans

Angel OakThere are many important components to keep in mind when you are applying for commercial real estate loans. The entire process can be complex, but the more you know about the process, the more you will be prepared for all of the expectations that will pop-up.

Business entities like corporations and developers are the ones that apply for commercial real estate loans. Often times, the extra finances are used for remodeling, revamping or even adding additional locations. Most small businesses that are just starting out are most likely not going to have a financial track record or an impressive credit score history, so that is when lenders may require owners of the entities to be the ones who are actually responsible for showing their credit score and financial history.

When it comes to commercial real estate loans, the terms can vary quite a bit. Most of these types of loans are going to be for around 5-20 years, but keep in mind that the amortization period could actually be longer than the actual term of the loan. This means that a loan could have an amortization period of 25 years, but the term of the loan might only be for 6 years. And the length of these periods will affect the rate of the lender fees. Always remember, the longer the period of time is for repayment, will result in higher interest rates.

The loan to value ratios is another factor that you should pay close attention to as well. This ratio is calculated by the lender and measures the value of the loan compared to the value of the property. When the loan to value ratio is quite high, it is not common for lenders to approve the loan application, but the category of the loan could also play a role.

The benefits of commercial real estate loans outweigh the higher interest rates

Commercial real estate loans are going to come with not only higher interest rates compared to those with residential loans, but often times it also comes with higher fees. These fees include additional costs for legal fees, appraisal fees, loan application and survey. All of these fees will be added on to the cost of your loan, so pay attention to the fees when shopping around.

There are certain eligibility requirements on Real Estate Commercial Loans

These types of loans are also known for coming with some prepayment restrictions. This means that if you decide to pay off your loan before the actual due date, you may be responsible for paying additional penalty fees. The most common prepayment penalty is calculated by multiplying the current outstanding balance by a certain penalty amount. Interest guarantee is another common fee with these loans. This is when a lender is entitled to a specific amount of interest, even if the balance is paid off early.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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