Commercial loans are available for a variety of property types ranging from raw land to entire retail centers. Some properties are purchased as investments while others are purchased by business owners who no longer wish to rent the building or office where their business is located. Properties purchased by businesses for their own operations are called owner-occupied. Depending on the purpose of the loan, financing options can vary. At C2 Financial, we are here to help business owners and investors throughout Carmel, CA with all of their commercial financing needs.
Commercial loans differ from residential loans in a number of ways. Interest rates, financing fees, repayment schedules, and loan-to-value ratios can even vary greatly between different commercial property types being purchased. This is because a lender’s risk will vary based on the property being purchased, it’s potential to produce income, and the individual or business entity purchasing the property. Most commercial mortgages are made to businesses rather than individuals, so analyzing the borrower’s ability to repay the loan can be much more complicated than with residential mortgages.
The most common residential mortgage is a 30-year fixed-rate mortgage. These loans are fully amortized meaning that over 30 years, 360 payments would be made, at which point the loan would be paid off. Commercial real estate loans are often made on shorter terms, from 5 to 20 years, and the amortization period is often longer than the loan term. For example, a commercial loan may have a 5-year term, amortized over 30 years. This means that for the first 5 years, payments would be made as if the loan were to last 20 years, however, at the end of the 5-year term, a balloon payment of the remaining balance of the loan would need to be made.
Loan-to-value (LTV) ratio is the value of a loan compared to the value of a property being purchased. The LTV of a commercial property with a value of $1,000,000 and a loan amount of $800,000 would have an LTV of 80%. It is not uncommon for residential mortgages such as FHA or VA loans to have LTVs of anywhere to 95-100%. Commercial properties will typically have an LTV in the range of 60% to 80%. The LTV for commercial loans can vary depending on the type of property being purchased.
C2 Financial offers commercial financing on many property types including: