The Pros and Cons of Commercial Real Estate Loans

Nothing in the business world is one size fits all. You will need to evaluate the pros and cons of all options of commercial real estate loans.

When you are considering making a purchase of commercial real estate there are many factors that you need to take into consideration. Is property ownership going to help grow your business? Do you have the time and ability to manage and maintain the property? And do you know enough about commercial real estate loans to complete the application process successfully? All of these questions are important and can help you to decide if making the purchase is right for your business.

One big benefit to commercial real estate loans is that there are many different options available. Unlike a residential property loan which can be somewhat limited in terms, commercial real estate loans can be very diverse. The time frame can vary from six months to around fifteen years depending on the size of the loan and the borrower’s needs. In addition there are amortized loans or loans which end with a balloon payment. This variety allows a business owner to seek a loan to meet the specific needs of the company and the property being purchased. Hand in hand with the variety of loans is the variety of repayment plans that a borrower can select. All of these variables allow businesses to create loans that will work with their cash flow and business structure.

Another benefit to purchasing commercial real estate is that carrying the loan and making the regular payments is sure to boost the credit rating of your business. This strong credit history can be a big help when you are securing additional funding for more property, to purchase materials or inventory or to facilitate any other type of business growth. But the opposite is also true. If you fail to make payments then the default will hang on your credit history and make it even more difficult to get credit in the future. In addition, the slow payment or failure to pay issues could end up on your personal credit as well.

There are Some Cons

Other issues that new commercial borrowers complain about are the hurdles that must be cleared to obtain a commercial loan and the length of time that is required to process a commercial loan. Not only does the size of a commercial loan make the qualification process more stringent but also the volatility of some businesses can have an impact as well. In general, a downturn in the economy will put financial pressure on a business faster than it would on a consumer. For this reason, lenders look at commercial loans as more risky and have higher standard requirements for commercial loans.

Look at the Entire Scope of Commercial Property Ownership

Buying a commercial property is a big commitment for any business. And as you look at all of the pros and cons, you might decide that this is not the best time for your business to take that step. Only you can answer that question. But having all of the information to make a well informed decision is critical.

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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