Financing Commercial Property

A business man or a company always aspires to expand the business, diversify it and ventures to acquire lands for various activities. Having sold his products for credit, and anticipating higher operating costs in the future months, opts for a commercial loan. In business circle, there is expansion called the backward integration. For example, a business house which was manufacturing polyester cloth with power looms, later started manufacturing polyester threads, followed by raw material manufacture i.e. DMT and MEG, then set up a petroleum refinery and ending with oil rigging. For expansions like these, business house has to invariably acquire acres of land, purchase manufacturing equipments, buy new business complexes for running the office etc. For want of funds, the company applies for commercial property loan.

Commercial property financing is sanctioned for all types of income-generating or commercial properties. Some of them are Shopping Malls, Hotels and apartments, Manufacturing units, automobile dealerships, and hospitals. Any kind of property which involves business operations and revenue generation is termed a commercial property. It differs from residential property in that the latter is for personal use only.

Financing Commercial property is the work of commercial loan lender may it be a bank or any insurance company. The commercial loan lender sanctions loan to the business house, taking fixed assets of the company as collateral security for assured repayment of the credits. In case of default, the commercial loan lender has the full right of seizing the collateral asset but cannot claim from the company other dues. Commercial loans are granted to the borrower who repays the principal amount with interest in monthly installments over a long period of 20 years. Some commercial loan lender requires the borrower to repay total remaining amount after a small period of time. This is called balloon payment.

Financing commercial property depends upon the valuation of collateral security and the credit worthiness of the borrower. The commercial loan financier insists on the property being owned by a single entity like a corporation which is convenient for the former to seize and sell in case of default, even in case of the entity going bankrupt. Commercial loan lender charges higher rate of interest than a home loan lender.

Financing commercial property starts with application by the borrower i.e. the business house. The commercial loan borrower has to carefully plan, and follow through when applying for the same. With the expert guidance of financial consultants, the borrower has to decide the exact loan required for the plan of action because extra loan got from the lender invites more interest.

The business house going for commercial loan should take advice from knowledgeable friends and online information’s before loan requests are made to the commercial loan lender. The borrower company intending to buy real estate with the commercial loan has to submit details pertaining to area, maps, copies of clear title deeds, property valuation. Financing commercial property requires from the borrower earlier two year’s business returns, current financial statements and planned expansion program.

Financing commercial property is the system used by multi-national companies all over the world to amass wealth, fame and their brand names are popular in every household.