Coming up with an interest rate for your Texas Commercial Real Estate Loans is not just as simple as going with the current market rate. There are a number of factors that go into determining the rates for individual borrowers.

When it comes to Texas Commercial Real Estate Loans, the more you know about how the actual numbers are arrived at, the better off you will be, not just in understanding where you stand, but also as a potential point for negotiation with lenders. There are four main areas that will affect the rate of your loan.

Credit Risk of the Borrower-A lot of this comes down to the individual’s credit score and the transaction history of the business. To put it simply, if the borrower has a credit score that is very good, they will be receiving a much better rate from lenders. Banks see a high credit score as an indicator of financial responsibility and rates will be lowered because the bank does not have to worry as much about being paid back. With lower credit scores, rates will undoubtedly go up, as the bank is going to want to make sure that they are getting the most out of their loan at the beginning of the process rather than over the course of the loan. In fact, if a borrower’s credit score is too low, it might not even be possible for them to receive a Texas Commercial Real Estate Loans.

Amount and Length of the Loan-This is a tricky factor to nail down, as it depends on the type of lender that is offering the loan. It also has a tendency to go hand in hand with the credit risk presented by the borrower. As a general rule, the higher the credit risk, the higher the interest rate and the shorter the length of the loan. This is especially true with hard money lenders, who offer very short-term loans with higher interest rates for borrowers who have a low credit score. Traditional lenders often work opposite of this, with shorter loans receiving lower rates, while longer loans that require longer terms might have a higher rate.

Market Rates-There is no getting around it. The strength of the economy also impacts the interest rate that a borrower will pay on a Texas Commercial Real Estate Loans. As a general rule, if the economy is strong, the interest rates are going to be low in order to entice borrowers to take out loans and expand their businesses. If you are seeking a loan during an economic upswing, you will likely get a very good rate, but always try to get it locked in, just in case the economy takes a turn for the worse.

Type of Loan-The type of loan that is being acquired will also play a part in the interest rate that is applied to it. Hard Money loans are going to have much steeper rates than traditional or SBA loans. This goes back to the credit risk that is presented by the borrower. Another determining factor in the type of loan is how long the business has been in existence.

So why are Texas Commercial Real Estate Loans interest rates typically lower than other loans?

When a lender is able to have security on a loan in the form of real estate, it ensures them that they will at least get value out of the loan if the borrower is not able to pay. As such, they will lower interest rates because they are less worried about claiming their profit on the front end of the deal. They will allow it to be spread out over a longer term. Texas Commercial Real Estate Loans are a relatively safe loan for lenders because of this security.