Commercial Property Loan
Why Our Commercial Property Loan Is Different
In our experience, one of the main reasons small businesses choose to rent instead of purchase their own commercial real estate property is the perception that they can’t afford the down payment. Many of them are not aware that SBA-guaranteed loans are available to qualifying applicants and can provide up to 90 percent loan to cost financing. This is the ideal commercial property loan for small business owners and entrepreneurs.
In fact, the 504 loan program, which is what we specialize in, was designed to assist small businesses in building or purchasing properties while spurring business growth in the local economy. Our 504 Loan Program is called ‘The SmartChoice Loan’.
Only 10% Down
While in some parts of the country, use of the 504 loan program is widespread, there are other areas, such as those east of the Rocky Mountains, where this program isn’t getting the attention it deserves. If you are unable to put down much of the loan cost, The SmartChoice Loan is worth looking at: it only requires 10% - and there are no closing costs in addition to the 10% down! (Please note that there are certain basic criteria you will need to have to qualify for the 10% down program. A good lender work with you to do his or her best to help you qualify for this benefit.)
The other 90% of the financing comes from two places: up to 50% of the total cost (land, building, renovations, and soft costs) is paid for by a senior lien from a private-sector lender, and up to 40% comes from a junior lien from a Certified Development Company (this portion is backed by a 100 percent SBA-guaranteed debenture).
Longer Term
Another differentiation between our kind of financing and regular bank financing is the length of the terms we offer. An ordinary bank gives much shorter terms because they want this risk (that’s how they view it) to get paid off more quickly, which means a fifteen- or twenty-year term instead of the twenty-five-year term that we offer. Yet those extra five or ten years make a dramatic impact on monthly cash flow for the business owner.
Smaller Payments
Since most banks and loan programs require a minimum of 20-30% of the property cost, and do not fold in soft costs and closing fees, 504 loans are a great way to get the best of everything: by paying only 10% down, you retain more capital and are able to make smaller payments over the life of your mortgage.
Because you have two separate loans with the 504, you end up getting a blended rate that is below market. The first loan is either fixed or variable, and is at or slightly higher than conventional financing rates. The second mortgage (the 40% loan) is considerably lower than market interest rates, and is fixed for the life of the loan. Having a lower interest rate lets your company retain more capital.
504 loans can close in 30 days or less, saving you time, and helping you get into your new property sooner. Another advantage is that there are usually fewer “hoops” to jump through to get approved, as long as you are dealing with a lender who specializes in this type of loan, like ourselves, as opposed to one who might process one or two a year.
We know this loan inside and out and can streamline the process, as well as make sure you are receiving all the benefits.
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