The Skinny on Commercial Real Estate Loans
by Leeia Ladipoh on February 14th, 2008
Whether you have been running your business out of your home or a small office in town, if things are going well, you may be thinking of expanding your working space.
Few people have the money on hand to purchase a whole new office building or company headquarters. You are likely going to need a commercial real estate loan.
For many, more time is put into finding the right piece of property or office space for their business instead of going into finding the right commercial real estate loan. This is a major mistake. Not being careful when shopping for a commercial real estate loan can end up costing you a lot more in the long run.
Making things worse are finance companies that understand the excitement of entrepreneurs who are trying to grow their businesses. They will show them loan deals that look great, hoping they will jump in and sign without reading what they are really getting into.
In many cases, they will offer a great low interest rate; but it’s on a short-term loan that will be hard to keep up with.
Let’s take a look at how you can avoid ending up on the short end of the stick.
How to Find the Best Loan Yourself
You need to do a little comparison-shopping. Talk to the lenders you are considering to see what they have to offer. Once you gather the loan options from various lenders, size them up against one another to figure out the best deal.
Remember, the bank you have used before is not always going to be the best. While sometimes you will find a great deal with a lender you have known for years, other times there are specialty lenders that are more focused in the commercial real estate loan market and can offer better rates.
There are some provisions you should keep an eye out for when comparing commercial real estate loans. Look to see if there are “call” or “recall” provisions worked into the loan. This means that at any point in time the lender can see that your financial situation is not what they want it to be and can call the loan in.
If this happens, you could be faced with losing your property – or having to refinance it at whatever rates you can get from another lender.
Let Someone Else Do It
Not all business people have the time to do comparison shopping and hunting for the best rates. After all, if you are working on running a business, you may think your time is better spent doing just that. This is when you may want to call a commercial mortgage broker.
Most mortgage brokers have a number of lenders they work with. They will crunch all the numbers for you then show you a side-by-side comparison of a variety of lending options.
The detail to keep in mind about a mortgage broker is that they are not doing this because they’re nice – they want a cut. They will often ask for 1-4 percent of the loan amount as their commission. With this in mind, make sure you do your own research into the options offered so you don’t end up with a deal that’s better for the broker than for your business.
Legal Issues
Whether you do it all yourself or bring in a mortgage lender, you also will need to bring at least one other person into the equation as you secure commercial real estate loans – a lawyer. You should always have a commercial real estate attorney look over the loan documents and make sure you are getting a deal that is favorable.
They may even be able to do a little negotiating on your behalf to make the loan terms work more in your favor.
If your business is growing, a commercial real estate loan will likely be a part of your future. The important thing to remember is to enter into them carefully so the loans you take will be a positive part of your business growth, not a mistake you spend years regretting and paying for.