Options For Financing A Commercial Property

Posted on: 12 November 2015

If you're in the market for your first commercial property, the purchase process can be overwhelming. The financing for commercial properties is unique as well. If you've never bought commercial property before, you may not be aware of some of the financing options available to you. Here's a look at the three most common methods for financing that first commercial property.

Traditional Bank – Many people turn to their bank for commercial financing just as they would for a home. Your local bank may even have a team dedicated to commercial property loans. Just remember that this is an option best reserved for situations where you have a larger up-front cash amount. Banks may require a much larger down payment on your commercial loan than you might be required to pay with other lenders.

It's also important to note that it's harder to get a pre-approval for a commercial loan, because most banks base commercial lending decisions on specific properties. That means that you might have a better chance of getting the loan for an established property that has multiple long-term reliable tenants than you would for a loan on a property where your company will be the sole occupant. This is because a building with many tenants is a more sound investment due to the multiple revenue sources.

Specialty Business Loans – Some small businesses can seek a property loan specific for small businesses through an organization dedicated to small businesses. These programs usually have strict requirements, including occupancy requirements that mandate that your business occupy a certain percentage of the building. However, since these types of loans are guaranteed to the lender by the organization, they are sometimes easier to secure. And, you might be able to finance more of the purchase price, requiring a smaller down payment.

Permanent Funding – You can also work with a mortgage broker to build a loan package using insurance company investments and pension funds. These loans, called permanent financing, are usually reserved for large purchases, such as multimillion dollar commercial properties. They're made to be a long-term loan, much like a traditional mortgage, which can make it easier to manage payment schedules. They often come with pre-payment penalties, though, so make sure you know what the requirements are for your payments.

Understanding your financing options can make it easier for you to tackle that first commercial property purchase with confidence. Consider these financing choices and talk with a specialist like NAI Norris Beggs & Simpson about what other financing avenues may be available for your business.