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Commercial Real Estate Financing

Bigger financing options call for substantial collateral. With commercial real estate financing, you secure your funding with the property you own.

Commercial Real Estate Financing

Before a provider decides whether or not to approve you for funding, they will often look at your proposed collateral and determine how much it is worth. In these situations, the more valuable the collateral, the better chance you’ll be approved for funding and the less interest you might end up paying. With commercial real estate financing, you offer your commercial real estate as collateral for your funding. Providers like this type of collateral because property is generally a safe investment. The interest rate for this type of funding can be comparatively low.

Commercial Real Estate Financing at a Glance

If you have plans to build a business project or a structure for your company, commercial real estate financing might be a viable option. Here are the main points:

  • The funding amount can be anywhere from $150,000 all the way up to $5 million. Your funding amount will depend on a number of factors. One of the most important factors will be the value of the commercial real estate you put up as collateral.
  • The term is usually around 20 to 25 years.
  • The interest rate for commercial real estate financing tends to be around 4.25-percent to 6-percent. This is low for small business funding, but most other small business financing options would not be a suitable way to fund this kind of project.

There are a number of different projects you can use this money for, but your provider will probably require you to use the money to build some kind of a structure.

Main Advantages

The main advantage of commercial real estate financing is the relatively low interest rate. This is especially important when you consider the size of the funding.

Disadvantages

Commercial real estate financing is not for everyone. Most providers will require that the money be used for a specific project. The minimum funding amount is usually over $100,000. So this is not an ideal funding solution for smaller projects.

If you need the money fast, you might be disappointed about how long it can take to get approved for commercial real estate financing. Remember, the provider will need to look at your business’s finances as well as the value of the real estate you will use as collateral. This takes time.

Commercial Real Estate Financing Wrap-Up

Commercial real estate financing is not the same thing as getting funding to pay for commercial real estate. With this type of funding, you use real estate you already own as collateral to get money to pay for specific business projects, such as the construction of a structure on your commercial property. This type of funding is risky because if you default on the agreement, you could lose the property that your business is built on.

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