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Shopping Smart for Commercial Real Estate Loans
Author David Schneider | Nov 16,2007
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Shopping for commercial real estate can be both exciting and frustrating. After trekking out to all corners of your town, inspecting possible properties and finally selecting the ideal location for your business, you then have to find a good commercial loan to fund your new real estate. Of course, you don't want to end up paying more than you absolutely have to, so here are some tips that will help ensure that you get the best deal on your commercial real estate loan.
Get Pre-Approved for Your Commercial Loan
When shopping for a commercial loan, it's always a good idea to get pre-approved before you start looking at properties. It would be unfortunate to spend days or weeks seeking out the ideal commercial property only to find you cannot get approved for a loan large enough to cover the purchase. Pre-approval let's you know exactly what your real estate budget will be, allowing you to immediately rule out any properties that are too expensive.
Obtain Price Quotes From Various Commercial Lenders
One of the smartest things you can do when shopping for a commercial real estate loan is to contact numerous lenders. Commercial loans can vary drastically in prices and fees, making it extremely important to investigate as many loan offers as possible. You'll want to review the terms of each loan carefully to determine which one is right for you. Do this by comparing interest rates, upfront fees, company reliability and services offered.
Take Special Note of Commercial Loan Interest Rates
When comparing your loan offers, the interest rate is a good place to start. This is because the interest rate is the most important factor that goes into determining the cost effectiveness of a loan. Interest rates vary depending on the lending company and the strength of the real estate market at any given time. Historically, commercial interest rates have ranged between seven percent and 18 percent. Obviously, you're looking for a loan with the lowest interest rate possible that still provides you with the services you desire.
In most cases, you'll also want a fixed interest rate as opposed to an adjustable-interest rate. A fixed rate locks in the initial interest rate for the entire length of the loan while an adjustable rate changes as the market rates change. Due to this, you'll only want to consider an adjustable interest loan when market rates are high.
Avoid Commercial Loans That Include Prepayment Penalties
As a responsible borrower, you may intend to make extra payments on your loan to reduce the amount of total interest you pay over the course of the loan. This is great for you, but it reduces the profit that the lender makes off the commercial loan. Due to this, some lenders enforce prepayment penalties to discourage borrowers from paying off loans early. If the loan you are interested includes prepayment penalties, it's likely in your best interest to look elsewhere. There are plenty of lenders who will gladly offer you a commercial real estate loan that does not include prepayment penalties. You should gladly take advantage of their services.
Fully Understand All Fees Associated With Your Real Estate
The monthly premium on your commercial loan will not be the only cost related to your real estate. To be sure you can afford the loan that you are approved for, you need to fully understand other related costs. For example, commercial property taxes can dramatically increase the cost of owning your business property. As opposed to the traditional residential tax rate of 16 percent, most commercial property owners can expect to pay a higher rate of 38 percent. Plan ahead for such added costs, and you can help ensure that you won't get behind on payments. Shopping for commercial real estate can be both exciting and frustrating. After trekking out to all corners of your town, inspecting possible properties and finally selecting the ideal location for your business, you then have to find a good commercial loan to fund your new real estate. Of course, you don't want to end up paying more than you absolutely have to, so here are some tips that will help ensure that you get the best deal on your commercial real estate loan.
Get Pre-Approved for Your Commercial Loan
When shopping for a commercial loan, it's always a good idea to get pre-approved before you start looking at properties. It would be unfortunate to spend days or weeks seeking out the ideal commercial property only to find you cannot get approved for a loan large enough to cover the purchase. Pre-approval let's you know exactly what your real estate budget will be, allowing you to immediately rule out any properties that are too expensive.
Obtain Price Quotes From Various Commercial Lenders
One of the smartest things you can do when shopping for a commercial real estate loan is to contact numerous lenders. Commercial loans can vary drastically in prices and fees, making it extremely important to investigate as many loan offers as possible. You'll want to review the terms of each loan carefully to determine which one is right for you. Do this by comparing interest rates, upfront fees, company reliability and services offered.
Take Special Note of Commercial Loan Interest Rates
When comparing your loan offers, the interest rate is a good place to start. This is because the interest rate is the most important factor that goes into determining the cost effectiveness of a loan. Interest rates vary depending on the lending company and the strength of the real estate market at any given time. Historically, commercial interest rates have ranged between seven percent and 18 percent. Obviously, you're looking for a loan with the lowest interest rate possible that still provides you with the services you desire.
In most cases, you'll also want a fixed interest rate as opposed to an adjustable-interest rate. A fixed rate locks in the initial interest rate for the entire length of the loan while an adjustable rate changes as the market rates change. Due to this, you'll only want to consider an adjustable interest loan when market rates are high.
Avoid Commercial Loans That Include Prepayment Penalties
As a responsible borrower, you may intend to make extra payments on your loan to reduce the amount of total interest you pay over the course of the loan. This is great for you, but it reduces the profit that the lender makes off the commercial loan. Due to this, some lenders enforce prepayment penalties to discourage borrowers from paying off loans early. If the loan you are interested includes prepayment penalties, it's likely in your best interest to look elsewhere. There are plenty of lenders who will gladly offer you a commercial real estate loan that does not include prepayment penalties. You should gladly take advantage of their services.
Fully Understand All Fees Associated With Your Real Estate
The monthly premium on your commercial loan will not be the only cost related to your real estate. To be sure you can afford the loan that you are approved for, you need to fully understand other related costs. For example, commercial property taxes can dramatically increase the cost of owning your business property. As opposed to the traditional residential tax rate of 16 percent, most commercial property owners can expect to pay a higher rate of 38 percent. Plan ahead for such added costs, and you can help ensure that you won't get behind on payments. |
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