Financing Options

Commercial Real Estate Financing Basic

Financing the purchase of a Commercial Property in the USA is a little different from financing the purchase of a Residental Property here. For starters, interest rates are likely to be between 1% and 3.5% higher than mortgages used for purchasing a Primary Residential Home. This is because fundamentally the risk on most Residential Mortgages is subsidized, assured or insured by the Federal Goverment in one form or another. With Commercial Mortgages however, that is not generally the case (although there are some exceptions like Small Business Administration (SBA) Mortgages). Hence if projected net rental return on the borrowed money is higher than the interest rate thereon, then clearly leveraging the asset will increase the cash-on-cash return to the investor.

Loan Terms for Commercial Mortgages can also be significantly different to those offered for Residentail Properties. Generally Commercial Mortgages are repayable over 10, 15, 20, 25 and sometimes even 30 year periods. Down Payments on Commercial Loans can also be higher and typically 30%, 35% and even 40% Down Payments are required. This reduces the leverage available to Buyers, but also reduces their exposure to risks. When financing a Commercial Property, the Lender is going to look NOT only at the credit-worthiness of the Borrower, but also at the type of Property Investment, and if applicable, at the Tenant as well. These factors will all impact the terms of the loan. Additionally, certain types of Lenders tend to favor certain types of Commercial Properties and if financing is to be used, it is imperative that the Lender or Mortgage Broker is highly experienced in the type of Commercial Property being funded. Here Team-Commercial-USA Agents have sought out and vetted only the most competent and experienced Loan Officers and Mortgage Brokers relative to specific Niche Investment Sectors.