If you’re ready to take the important step of making a major commercial real estate purchase, you’ve got to figure out the best way to make it happen. While loans for residential real estate are generally assigned to an individual borrower, a commercial loan is generally placed with a business entity. With transactions of this kind, certain legal issues need to be resolved to set up for a successful result. Read on to learn about information about how to finance your New York commercial real estate purchase.
What are Commercial Property Loans?
The commercial property loan agreement is basically just a contract between the borrower and the lender. While that may seem simple, the loan terms can actually be complicated with the documentation consisting of various clauses with complex language.
There are various alternatives, but typically the loans can be broken into a few key categories. The first concerns the type of lender.
Conventional Bank Loans
Most commercial real estate loans are made by traditional banks. Things to know:
- Usually requires a strong credit history
- Offer competitive interest rates
- Likely requires at least 20 percent down
- Doesn’t require the property to be owner-occupied
- A penalty may be charged if the loan is paid off early
Small Business Administration (SBA) Loans
The federal and state governments have programs for eligible borrowers who can’t meet standard commercial loan requirements. The U.S. Small Business Administration (SBA) offers some of the least expensive loans for investing in commercial real estate. Things to know:
- Assists the commercial borrower through increasing their creditability and
- Makes borrower more favorable by guaranteeing the loan
- Reduces risks for the lender
Hard Money Loans (aka Bridge Loans)
These are short-term loans with high interest rates and are based on the perceived value of the real estate and not the borrower’s credit history. They are usually short term (for example, for a year or less) and are used temporarily while an investor works to secure a longer-term bank loan.
Other Types of Loans
Here are some other solutions to commercial real estate financing
- Commercial Mortgage-Backed Securities (CMBS): These loans (aka conduit loan) are commercial real estate loans secured by a first mortgage on a commercial property.
- Acquisition and Development Loans: This type of loan covers the cost of acquiring the land and the expenses associated with developing it, in addition to interest and sales commissions.
- Mezzanine Financing: These loans can be used to provide additional money that helps a developer complete a project where a short-term loan is provided to a developer in return for a partial interest in the company as collateral.
- Construction Loans: A straight forward loan for the financing of construction on a commercial property.
Help for Financing your NY Commercial Real Estate
There are many financing options available for your New York commercial property. You can navigate the complexity of this type of transaction with the helping hand of an attorney familiar with real estate, finance, and securities law. Our experienced MOWK Law lawyers can give you guidance as to your best bets, given your situation. Contact us today for more insight.