There’s been a rise in the market for commercial real estate in recent years as a result of India having the second-fastest expanding economy in the world. But owning property is difficult for a small business since it costs more money than the majority of start-up companies have on hand. Consequently, a commercial property loan is required to assist in making the purchase possible.

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Facts you need to know regarding commercial property loan

A commercial property loan differs from a home loan. However, as we will explore below, there are certain shared criteria and features between the two:

• Loan-to-value ratio

Lenders will often lend between 85% and 90% of the value of the home. But lenders will only provide 55 to 60 percent of the property value in the situation of commercial office space. You must have enough money to buy the home, even with loan funding, so you must maintain the loan-to-value ratio in your brain while you choose the property.

• Loan period

A commercial property loan can last up to 15 years, whereas home loan might last up to 30 years. The majority of commercial loans are granted for terms of less than ten years.

• Mortgage rate

Commercial real estate carries a rate of interest that is one to two percentage points more than residential real estate. You should be mindful of the loan’s interest rate because it will directly affect your company’s earnings and loss.

• Security

The principal security maintained by lenders is the mortgaged property. The bank has the power to liquidate the property and recoup any unpaid loan balance in the event that the debtor is unable to make payments on the loan.

• Process charges

You will be charged processing/up-front fees by the financial institution of between one and two percent. Depending on the borrower’s credit history, there may be some discounts on the costs, so be sure to enquire.

 Factors influence the approval of your loan

Some crucial factors can strengthen your application and hasten its approval. Use the checklist listed below to improve your chances of receiving clearance quickly.

1. Individual’s or business’s financial stability

Financial institutions prefer that their customers have strong credit histories and reliable, adequate sources of income for loan repayment. In order to assess your creditworthiness, lenders normally request your:

• Statements of business savings accounts
• Return of income taxes
• Financial records
• Your chances of obtaining credit from a lender are increased by having a higher credit rating and more consistent cash flow.

2. Builder’s status

For a property that is still being built, a builder’s reputation is very important to the lender. A property being built by a reputable builder with a track record of completing projects on time has a higher chance of receiving financing.

3. Approvals

Financial institutions demand that the borrower submit all required approvals for the property as of the loan application date. If there is pending approval, both the borrower and the lender are taking a risk. The principal security must be a spotless, sellable property, according to the institution.

4. Collateral security

Just like a home loan offering the lender more collateral security can also help your application if you’re looking for a loan for a property that is still being built. Any additional land or property you already possess that is mortgage-free may be used as the offered collateral. It aids in providing the lender with high-security protection and lowering the risk associated with the commercial property loan.

5. Technical assessment

The mortgaged property is kept by the lenders as their main security to sell it to recoup their losses if you are unable to pay back the loan.

Making sure the structure complies with all technical specifications, such as those for emergency exits, shafts, lifts, and fire safety equipment, can increase your chances of getting a commercial property loan.

6. Area

Only properties that are larger than a certain minimum standard in terms of area are often financed by banks. Before choosing a house and submitting a loan application, you should speak with your preferred financial institution to learn more about this minimal area.

Documentation

The documents that lenders sign with the borrower follow a common format. It consists of the

• KYC documents
• Income documentation
• Property records
• Copy of the property’s permissions, the loan agreement’s execution, and other commitments.

Conclusion

Coworking facilities are frequently chosen by startups as a cost-effective solution. However, as the business expands, more room is needed for both its consumers and employees. Obtaining a commercial property loan can be challenging because investing in commercial real estate is risky. However, by using all of the advice in this piece, you must be able to increase your chances of obtaining the loan for commercial real estate that you want.