Commercial Lot Loans

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Commercial Lot Loans

August 26th, 2008

What is a commercial lot loan? Commercial lot loans are intended for businesses that are looking to build and do construction on a lot rather it be commercial or residential. Lot loans provide the necessary financing that will fund the purchase of the land or refinance the land for improvements. Many times they are commercial loans that you can get to combine different loan programs, but typically you will have to purchase the lot separately.

The terms of commercial lot loans can vary but generally go from two to five years depending on the borrower and the amount of construction being done. Some lenders do offer the option of taking on additional financing on the loan after the construction phases are complete if used for business purposes like selling homes. Most lenders have general guidelines and terms that they go by to determine the amount of the loan and grant the loan. Some of these general terms include:

• Up to one million in the loan amount with the option to refinance after the initial loan terms
• Up to 90 percent of the amount financed
• No application fees
• No up front banking fees
• Full and stated documentation
• Debt to income ratio up to 45 percent
• Fixed or adjustable rates
• Amortization – to help reduce the amount of principal

Amortization is basically the reduction of the principle amount of the loan over time through periodic and regular installments of payments. These payments are calculated over a specific time and at a specific interest rate. The amortization schedules are generally front loaded which means that they lean heavily towards the interest payment during the first few years of the loan and then gradually shift towards paying on more of the principle of the loan during the later years.

There can be differences in the rates and terms of commercial lot loans that can make the payments lower. One way to do this is to get lower interest rates. Interest rates are typically lower for those who have excellent credit, or for longer term loans. Commercial lenders can have some input on what the rates are for each type of loan, but go according to what the national interest rates are to start with. Commercial lenders use tools to access the ability of the business to pay back the loan and usually start out with determining the loan to value of the property that is being purchased. This is calculated to help the lenders determine and make sure that the property being purchased is worth the asking price and this step usually involves a full appraisal of the property as well as an analysis of the properties around it to determine a fair market value.

Commercial loan interest rates can also have differ for businesses that are under three years old. In these cases, they can require the credit information of the applicants and their individual credit worthiness. Most lenders are a lot more conservative when granting commercial loans versus residential loans.

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