February Commercial Tip - Understanding Financing Options

Understand Financing Options

The world of commercial financing is vastly different from that of residential real estate financing. It is important to understand these options to make the best decision for you and for the asset you are looking to purchase or business loan you are obtaining.

Commercial real estate loans typically have shorter terms than residential loans, ranging anywhere from a year to two up to twenty years, depending on lender and loan type. Your interest rates are typically higher than residential loans as well. Loan fees can be drastically higher with a commercial loan and can include significantly higher appraisal costs, legal fees, loan fees, survey fees and even engineering requirements associated with the property.

Commercial loans are also more likely than residential loans to have restrictions on prepayment or to charge prepayment penalties, although these can sometimes be negotiable, depending on the lender.

Some categories of commercial loans are conventional loans, seller financing loans, bridge loans, SBA or Insured Loans, and Hard Money (Private Capital Loans). Each loan can have it's own challenges as well as benefits. As with most things, there is a time and a place for each.

Understanding your financing options is critical to every transaction. Terms matter in the realm of commercial real estate financing and a simple 0.25% to 0.50% change in the interest rate can mean tens of thousands of dollars over the life of the loan or a prepayment penalty can have a drastic effect when not remembered if you desire to sell and your net proceeds at closing.

Our agents at The Fletcher Group aim to take a proactive approach to each deal assisting our clients with truly understanding all aspects of the deal, including financing. If you need help today, please reach out to one of our agents, we are here to help.