Commercial Real Estate Loan Types, Terms, And Lenders
Are you seriously considering investing in commercial real estate? Then, you must know that taking a loan and buying commercial real estate is a possibility and a fruitful one at that. This blog will prove to be useful for you and take you through the different types of loan for commercial real estate investing, the terms, and lenders. Get reading!
Commercial real estate includes any property that produces regular income for the investor. They are also called income-generating properties and are one of the most secure investments you can make. Commercial assets have proven to perform well even in a bearish market.
Similar to what you can (and most people) do while they buy a house, you can take a loan while investing in commercial real estate. A commercial real estate mortgage is when you buy out a commercial property, mortgaging the very same commercial property on a mortgage.
If you are looking to invest in commercial real estate, you have come to the right place! This blog will prove to be fruitful if you are looking to learn about the different types of loans for commercial real estate. We will discuss the different types of commercial real estate loans, the term for these loans, and the lenders.
What is a commercial real estate loan?
A commercial real estate loan is an exclusive mortgage for the purpose of purchasing commercial real estate investments. Commercial real estate loans are quite different from residential real estate loans. Loans on residential real estate generally have a longer repayment period – up to at least 25 to 30 years – while commercial real estate loans have a much shorter repayment period of up to just 20 years. When you look to buy commercial property, you must consider the different financing options and know all about commercial real estate loans.
|For what purposes can businesses apply for and avail a commercial real estate loan?
> To buy office spaces that are ready to occupy or under construction.
> To purchase retail shops/outlets that are ready to occupy or under construction.
> To get an existing commercial space renovated.
If you are investing in commercial real estate and are planning to take a loan, you must be prepared to do it through a lien. A lien is when you mortgage a property while buying it. You will get complete ownership of the property only when you are done paying all your dues. If you are unable to meet the deadline and the loan’s terms, the lender has the right to seize the property.
There are different types of commercial real estate loans you must know about while investing in a commercial property. This blog will take you through the various types of commercial real estate loans you can avail yourself as a commercial real estate investor. Stay with us!
What are the types of loans for commercial real estate?
There are different types of commercial real estate loans you can choose from to successfully invest in a commercial property. We will discuss the commercial real estate loan types in this section. Read on:
1. Term loan
A term-based loan is a commercial real estate loan type that is given for a fixed time period. If you are taking up a term loan for your commercial property, then you must be ready to meet tight deadlines and repay the loan you have taken up along with interest within the fixed time frame. There are both short-term, medium-term, and long-term loans. Short-term loans last for less than a year, while medium-term loans last anywhere between 12-36 months. Long term loans are those term loans, the repayment period for which goes beyond 36 months.
2. Letter of credit
A letter of credit can be used while purchasing or investing in a commercial property. This is a letter, often issued by a financial institution to a lender, citing that the borrower (in this case, a commercial real estate investor) will be regular in making repayments of the loan. In case the borrower is unable to pay the full amount, then the financial institution that gave out the LoC will meet the payment requirement of the loan.
3. SME collateral-free loans
These are commercial real estate loan types that are exclusively for small and medium enterprises. These loans are free of the need to produce any collateral. The loan is granted purely based on the borrower’s profile – their age, income level, location, citizenship, and more. Credit history plays a vital role in this type of loan that is available for SMEs of all kinds, including startups and small businesses.
4. Bank guarantee
A bank guarantee is one of the most popular types of commercial real estate loans involved in the purchase or investment of commercial property in India. It is nothing but the bank promising that it will cover the costs if the borrower fails to complete the repayment of the loan. This is a very fruitful option for young entrepreneurs and businesses, giving them an opportunity to set up businesses and flourish.
These are some of the main types of commercial real estate loans that help businesses and entrepreneurs successfully invest or buy commercial property in India.
What is the term of a commercial loan?
As discussed earlier in the article, the loan term for commercial real estate ranges from 5 to not more than 20 years. Residential real estate relatively has a longer repayment period of up to 25-30 years. Commercial loans are usually lent to businesses and other income-generating entities, as opposed to individuals in the case of residential loans. For a smooth loan acquisition, it is recommended that the business has a clear financial track record.
Here’s a list of the major banks in India and the interest rate they charge for commercial real estate loans:
|Bank Name||Interest Rate|
|Kotak Mahindra Bank||7.25% Onwards|
|Axis Bank||7.50% Onwards|
|ICICI Bank||7.75% Onwards|
|HDFC Bank||7.65% Onwards|
|Bank of Baroda||8.00% Onwards|
|Bank of India||8.35% Onwards|
|State Bank of India||8.45% Onwards|
|Punjab National Bank||8.70% Onwards|
|Indian Bank||8.80% Onwards|
|IndusInd Bank||9.00% Onwards|
|Canara Bank||10.70% Onwards|
What are the eligibility criteria for commercial real estate loans?
The eligibility criteria differ slightly from one financial institution to another. However, the following are the criteria for obtaining a commercial real estate loan at large:
> Applicant of the loan must be an Indian resident.
> They should have a stable source of income, especially in the case of self-employed individuals.
> The applicant must have a credit score of 700 and above.
> Applicant must be above 22 years of age and below 65 years at the time of the loan’s maturity.
> They must have a track record of minimum 3 years of business continuity.
If you are able to check all the pointers stated above, you can go ahead and apply for a commercial real estate loan. Read further into this commercial real estate investing guide to learn more about the documents required for the acquisition of a commercial real estate loan.
Documents required for acquiring a commercial real estate loan
There are two categories of people who can apply for commercial real estate loans:
(i) Salaried individuals
(ii) Self-employed individuals
The following are the documents you must produce to acquire a commercial real estate loan:
> Application form duly filled
> Age proof
> Address proof
> Proof of business (in case of self-employed individuals)
> 6 months payslips (in the case of salaried employees)
> 6 and 12 months bank statements (for salaried and self-employed individuals, respectively)
> Educational qualification proof
> Income tax returns
> Documents related to the property being purchased.
These are some of the most important things you must know about commercial real estate loans. Consult a financial advisor before you move ahead with taking a loan to buy a commercial property.
If you are looking to invest in commercial spaces in Chennai, Market of India is the best choice. Located within SPR City, Market of India is India’s upcoming largest wholesale and retail marketplace. They offer a wide range of commercial spaces, including wholesale shops, retail shops, office spaces, and other commercial spaces. To know more, visit www.marketofindia.co.in.