Securing a Commercial Land Loan is Worth the Hassle

Securing a commercial land loan or financing the property for a commercial development is sometimes much more difficult than other types of lots or land loans or more conventional real estate loans. Banks and other lending institutions will likely use extreme caution when considering a request from an applicant for a commercial land loan.

The primary areas of concern in regards to a commercial land loan for lending institutions lie in security. The only security on this type of loan is dirt, literally. The dirt or the land itself will not produce an income, so in theory it cannot service the loan. There are many economical and even political risk factors involved in the potential development of raw land that has not undergone the required approval by regulatory agencies.

Commercial land development naturally needs financing at the onset of the project, which is considered to be the riskiest leg of the projects life cycle. If you do not have a proven track record, excellent credit, and extensive resources, financing a commercial land loan can be a challenge. Although it may be a challenge, it is far from impossible.

In recent years, financing for real estate other than commercial land development has had many new options open up. For most types of real estate financing there are a wide variety of resources from which to secure a loan. Even though the options are not as varied there are still lenders that can be found that are willing to provide the financing on a carefully planned commercial land project. Use every resource you can find to present your project to potential lenders in a well thought out, attractive presentation.

Traditional lenders, such as credit unions and banks usually maintain very strict underwriting guides and do not allow for transactions with a high risk. Banks will look at many factors including the borrowers’ credit rating, associated risk factors and the location of the development. If you are a borrower that does not satisfy the criteria required at your bank, a private lender may be the best solution for obtaining a commercial land loan.

You may be able to secure the financing for your commercial land loan from a more flexible private lender. Real estate investors and other private lenders practice much more flexibility when evaluating potential deals. They evaluate the potential of the project and can provide financing on commercial land development, raw land loans and even property rehab loans.

Commercial land loans are often executed in the format of a commercial bridge loan. The terms of a commercial bridge loan are usually from several weeks up to several years. They are commonly used in the financing of commercial real estate deals in order to facilitate quick closings, avoid possible tax liens, or to allow an investor to take advantage of purchasing a promising commercial property when one presents itself.

Commercial bridge loans are not intended to be long term loans. They are just what the name implies – a bridge or stepping stone on the path to obtaining long term financing. They will buy some time and allow for an investor to take advantage of great bargains when they arise.

Many land developers have discovered that developing a property from its raw state is a very exciting and profitable venture. The profitability of this type of real estate venture alone makes it worth taking the time to find ways to effectively manage the risks involved and obtain a commercial land loan.