Commercial building financing is when businesspeople receive a large loan that they use to acquire new commercial real estate. Types of commercial real estate include hotels, apartment complexes, hotels, retail spaces, office buildings and car dealerships.
The Application Process
You may apply for commercial building financing online, at a bank, or at most lending institutions. To determine your qualifications, lenders will ask you to submit the following documents when applying for commercial building financing.
- Financial Statements – In most cases, only successful businesses with proven track records of success, great credit histories, and good tax records qualify for commercial building financing. Lenders will usually only risk this type of loan on businesses who can show profitable sales records and positive cash flow.
- Property Projection – Applicants will likely be asked to document the cost of their new commercial real estate, including income that it will generate and insurance costs.
- A Business Plan – Lenders require that applicants submit a business plan for the new commercial property, so that they can determine the business’s organization, profitability and overall potential.
Rates and Terms of Commercial Building Financing
Similar to home loans, commercial loans come in all shapes and sizes. You can choose a commercial loan with a fixed interest rate, where the interest and monthly payment amount remain the same for the life of the loan. Or, you can choose an adjustable rate loan, where the interest rate and payment amount cab fluctuate according to current market rates. Since most commercial building financing is for large sums of money, they tend to have long terms (e.g. 30-year).
Commercial Bridge Loan
Not all commercial loans have to be long-term or for large amounts. Businesspeople can also apply for a commercial bridge loan. A bridge loan is designed to help borrowers finance a project until it proves to be successful and they can then receive longer-term, lower interest financing.
For example, let’s assume that a developer uses a short-term bridge loan to build a retail store. After one year, the store is complete, and the business is doing quite well. A commercial bridge loan gave the developer enough time and money to build and set up the business, and successfully run it and build a customer base. Now that the developer can prove that the business is successful, he or she can get longer-term, lower interest financing to help pay for expenses.
Seeing an Immediate Return on Investment
Commercial bridge loans do not generally have a pre-payment penalty. This makes them ideal for investors who purchase and renovate fixer-uppers and then sell them for a profit. For example, an investor may apply for a short-term commercial bridge loan to renovate a run-down apartment complex. After one year, all renovations are complete, and the investor can now charge twice as much in rent. A bridge loan gives the complex owner enough time and money to make the necessary renovations. Now, he or she can sell the property to see an immediate profit.