The term commercial real estate refers to the purchase or sale of property strictly for business purposes. Although you may lease or rent your office or retail space, someone owns the building. This is a good example of commercial real estate. If you already own business property and want to expand it or you are looking to purchase a building for the first time, you will likely need to apply for a business real estate loan.

Real Estate Loans Are Mortgage Loans

A mortgage loan that you take out to finance a business property will typically require you to secure the property with a lien. A lien on the commercial property means that you as the owner give a creditor the right to seize the property should you become unable to continue making payments on your business mortgage. The requirement of a lien makes sense from a financial perspective when you consider that you are potentially receiving a mortgage loan for hundreds of thousands or even millions of dollars.

Down Payment and Other Requirements for Commercial Real Estate Loans

Due to the sheer size of the loan, your business lender will probably require a down payment of at least 20 percent and perhaps as high as 30 percent. Additionally, loan terms are generally shorter than mortgages for personal homes. You may qualify for a short-term real estate loan of fewer than three years or a long-term loan that runs between five and 20 years.

Another difference between residential and commercial real estate loans is that the latter typically come with a steeper rate of interest. The lender determines your rate by figuring out your loan-to-value ratio. For example, you would have a loan-to-value ratio of 75 percent if you paid 25 percent of the purchase price as a down payment.

Looking for more information about buying business real estate? Schedule an appointment with Simplicity Capital today.