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Commercial Real Estate Loans: What You Need to Know

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If commercial real estate is a venture you wish to pursue, then taking out a commercial real estate loan may be something you are looking into to help finance the purchase of your property. Commercial real estate loans are taken out to fund the purchase of a business property.

In very basic terms, they are mortgage loans intended only to be spent on commercial real estate properties, rather than residential for homeowners. If you have recently got into this business venture and keen to find out more about this type of loan, what do you need to know? Here is some useful information below that may give you further insight into taking out a commercial real estate loan:

You’ll have to pay a higher interest rate

Unlike high-street mortgage loans for residential properties, commercial property loans have a much higher interest rate, as they’re considered to be a much higher risk. Quite simply, if the business fails, you won’t be able to pay back the loan.

This, of course, puts a great deal more pressure on the shoulders of the people who lend, as they need to be able to prove they can pay back the entire sum of the property and the added interest. If you’re worried about whether you’ll be able to afford the costs of commercial property, seek expert advice from a commercial property lender today.

Image: Pixabay/DanEvans

You need to secure a lien

Loans are secured by a legal right known as a lien. This gives the owner of the property security rights over pending payments when the process hasn’t yet been completed. However, if there are any reasons why the lender can’t pay back what has been lent out, the creditor will have the right to take hold of the asset (which in this case, is the property) due to the lien that is in place. Here’s how you can file a lien.

You’ll be able to rent out the property

If you’re worried about getting the money to pay back the loan and interest rates of the property you have purchased, then you are fully eligible to rent out the property to generate an extra source of income to help fund your expenses. There are rules and regulations that must be adhered to in terms of health and safety and condition of the property. Therefore, you won’t be able to let it out if it’s in an unlivable state or there are major renovation works taking place.

You’ll need to apply

Similar to any type of mortgage you take out, you’ll need to apply for a commercial property loan, but there are certain regulations in place on how much you can borrow. In this case, it would be best to hire a specialist mortgage broker who will find you the most suitable lender so that the process is far easier for both parties. 

The application process is as follows:

  • Firstly, you will need to complete an Asset and Liability form.
  • Then, you’ll be expected to fill out a second form for application of the commercial mortgage
  • You’ll then be asked to give proof of your business and any extra information to help support your application.
  • The property will need to be valued before a final sum is offered.
  • Lenders solicitors will need to check any legal aspects.
  • Once approved, you’ll receive the sum of cash from the bank and into your account with the help of a solicitor.

If you are new to commercial property buying, it would be wise to do some research beforehand to help you choose the correct property for your goals.

 
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