Commercial Real Estate Loans

Acquire Property

Real estate can be a great investment for any sized business. In most cases, it also represents a big commitment, one that the business might not have cash on hand for. Most real estate investing is done with the help of real estate loans. They can be used to acquire a new property, to renovate an existing property, or to refinance another property loan.

Overview

Some companies and developers invest in real estate by building or procuring property that can be rented to tenants. This can include commercial rentals like convenience centers and office buildings, or housing developments intended for families. Once built and occupied, the cash flow from tenants can be used to repay the loan.

The terms of commercial real estate loans range from five to twenty years with a longer amortization period. The borrowing company makes payments based on the amortization period.

Interest rates on commercial real estate loans depend on the length of the loan term, the length of the amortization period, and the borrower’s credit strength. Lenders use a Loan-to-Value ratio to determine financing rates. A lower LTV often means more favorable lending rates. The LTV of most commercial real estate loans is 65% to 80%.

Another figure lenders take into consideration is the DCSR or the Debit-Service Coverage Ratio. This figure takes into account the business’s net operating income and annual debt service.

Loan Highlights

Commercial real estate loans are usually taken out by large companies or organizations.
Terms are commonly five to twenty years.
Payments are based on an amortization period, with a balloon payment due at the end of the term.
Commercial lenders look for a 1.25 DSCR.
Commercial loans are intended for income-producing property.
Most LTVs are between 65% and 80%.