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How to Get a Loan for Buying Commercial Property?

Funding a business is risky and not many money lenders are willing to step in. Buying commercial property either with the intention of investing or with the aim to build a new office/ retail space for the business requires some effort. It is not impossible, but it surely is not as easy as getting a loan for residential property.

We see entrepreneurs and small business owners asking questions about what kinds of loans they are eligible for. One such common question is whether they can get a loan to buy an office space. While we are aware of how easy it is to get a loan for residential property, we are not exactly aware of the process of acquiring a loan to purchase commercial property.

Banks do provide secured loans to purchase a commercial property. There are certain rules and regulations that have to be followed to avail of the loan. One can try to lend money from other financial institutions as well, though it is suggested to approach genuine lenders who mention their terms and conditions in clear words.

Professionals such as doctors, engineers, lawyers, consultants, CA (Chartered Accountants), architects, company secretaries who are self-employed are eligible for a commercial loan along with self-employed individuals who are into trading, commissioning, and contracts.

Commercial Property Loans

The real estate property which will be used to run business activities is known as a commercial property. While startups tend to begin at home or small residential spaces, as the businesses expand, the need to purchase or rent a commercial space will arise. While renting a commercial space is comparatively easy, purchasing one requires careful consideration of various factors.

  • The loans can be used to purchase or rent a commercial space of business. It can either be a new establishment or an existing one.
  • Processing a bank loan can be easy if the business owner has the required documents. Pay attention to the loan eligibility criteria.
  • The commercial property loans are also used for extending, improving, renovating, and constructing the commercial establishment for the business.
  • Commercial property requires additional scrutiny. Hence, lenders tend to provide legal and technical expert assistance to business owners. They would rather invest in a commercial property that would guarantee results than a doubtful one.

There are two categories of commercial property loans which re again sub-divided based on the construction stage. The first one is the office space where the business runs its daily operations. The second one is the retail outlet that serves as a grocery or any shopping store. These are then classified based on whether the buildings are fully constructed (ready to occupy with all the necessary amenities) or are still under construction and will take some time to be occupied. However, there are exclusive financial institutions which fund under construction buildings for commercial purposes.

Know About Commercial Construction Lending

Community and regional banks provide loans for the construction of commercial buildings. These loans are basically of two types-

  • Long term permanent financing: In this model, the financing is ‘taken out’ after the building’s construction is complete and it reaches the occupancy stage.
  • Short term financing: The construction and lease-up stages are financed in this model.
  • Banks sometimes combine both the above models to provide a mini-perm loan in which the financing takes out construction loan yet is applicable for a shorter duration.
  • Commercial construction loans can be hard to secure but are very useful for businesses that are looking to build the office space.

Commercial property finance can be easily availed for buildings that are ready to occupy and have the required documents such as the occupation certificates. That said, these loans can stretch the monthly budget of the business. Commercial loans attract a higher interest rate compared to residential property loans and are available for a shorter tenure. This puts some strain on the finances of the business. It is better to calculate the risks in advance and make a wise decision.