Commercial Property Loans

Why All Commercial Property Loans Aren’t Created Equal

A good commercial lender will share several loan options with you. You can help expedite the process by educating yourself on the loan basics ahead of time so that you’re well prepared to make the decision on what kind of loan will be best for you. Proper due diligence on your part will make the process much easier.

Commercial Property Loans come in a variety of “flavors” — each with its own requirements and nuances. The following are two types of loan programs that you’ll be able to choose from:

Conventional Commercial Loan

Ordinary, or conventional, commercial property loans have the option of either fixed or variable interest rates (usually only up to 10 or 15 years) and typically require at least a 20% equity injection from the borrower (you). Many business owners find it difficult to come up with the down payment that a conventional loan requires. Keep in mind that additional soft costs and closing costs will likely come out-of-pocket as well. Even if you’re able to afford the 20% down payment AND have enough cash left over to cover closing costs, this is probably not the best use of your capital. There are better ways for you to reinvest this money back into your business instead of tying it up in a non-income producing asset like real estate.

The SmartChoice Commercial Loan

Considered by many lenders to be the “Best-Kept Secret in the Loan Industry,” SmartChoice Commercial Loans (aka 504 loans) offer below market interest rates (up to 30 years), and require as little as 10% down. Another perk of this loan program is that soft costs and closing costs can be rolled in to the total project cost and financed (meaning they won’t have to come out-of-pocket). The lower down payment and longer-term fixed interest rates make owning property much easier for many business owners to build or acquire their commercial property.

These are just two of the many financing options you have, but hopefully you can see how they differ. There are advantages and disadvantages to each type of financing, and a good lender will be able to explain the best options for your particular business.

NOTE: Be wary of banks — they have the tendency to promote certain products that generate higher “yields” for them. The loan a bank offers you may be a large revenue producer for them but a poor decision for you. You don’t want to be the square peg being forced into a round hole.