If you have been in the real estate market for a long time, you would know that maintaining, financing, and purchasing real estate is a tough nut to crack. Financing real estate requires huge capital; you might need a large principal for renovating purposes or leasing your real estate; no matter the reason or purpose, it’s always a good idea to get financial support.
In the midst of all the financial options available in the market, you are bound to get confused & baffled, and expert guidance comes in the best interest to understand your requirements and suggest accordingly. We will be guiding you to the best commercial real estate funding options based on different factors so you no longer will be at risk of getting duped.
Commercial Mortgage
A commercial mortgage is the first term that comes to mind when discussing commercial properties. What is a commercial mortgage? A commercial mortgage is a type of loan which is mostly lent by a bank and is secured by commercial property, such as shops, office buildings, industrial warehouses, shopping centers and renting apartments, etc.
In simple words, commercial mortgages are financial support given to buy, renovate, etc., money-earning spaces. In return, borrowers must put up collateral (security) and monthly repayments to commercial mortgage lenders.
Advantages
- Has a lower interest rate than other uncertain borrowings
- It is a great way to make substantial capital gains
- The interests of commercial mortgages are generally tax deductible
- Gives the borrowers a renting potential (in extra space)
- Has a longer tenure, and so borrowers can focus on more precarious financial needs
- Doesn’t limit the property’s uses; you have plenty of options to utilize your real estate
Disadvantages
- You will be required to give a hefty deposit
- The falling of property prices will evidently result in the reduction of capital.
- In case you choose a variable rate commercial mortgage loan, the monthly repayments can be more expensive due to a rise in interest rates
Working Capital Loans
Working capital loans are the financial support given to borrowers to make investments, such as buying real estate for the company’s growth. It is normally lent by the banks and NBFCs (Non-Banking Financial Company) and has a short tenure, such as 5 years.
Advantages
- It’s a quick way to get financial support for investing purposes
- The ownership of investment property goes to the borrower
- Working capital loans may not need collateral, though a good track record and credit score are required
- There is no fixed tenure so that you can borrow and repay the capital quickly and easily
- Spending the borrowed money depends on the borrower; you can invest in anything as long as you are in business.
Disadvantages
- You will not get leniency in loan repayment if your investment doesn’t work out
- In case lenders don’t find the borrower credible, you will be needed to put up collateral
- Interest rates can be really high unlike commercial mortgages
- Working capital loans can lower your credit score
Equipment Loan
An equipment loan is a part of a commercial mortgage restricted to equipment renovation and purchase. Lent by the bank, these loans give you financial support to buy, lease or renovate equipment for your business. The bought equipment itself will act as collateral until the end of tenure.
Advantages
- Grants you money for equipment-related investments
- Lowers your financial pressure
- No extra collateral is needed
- It will help with your company’s sale
Disadvantages
- Capital can only be used for equipment investment
- It has a high-interest rate than general commercial mortgages
- The borrower will become the owner of the equipment
There are also other funding options you can go for depending on your requirements like leasehold improvement loans, demand loans, vendor financing loans, etc., under the umbrella of commercial mortgages.
Leasehold Improvement Loan- These are the types of loans which are given to meet your commercial demands like improving lease space, making structural modifications in the rental or occupied property, to meet the demands of the tenant.
Demand Loan- It is a type of secured commercial loan where the borrower needs to return the whole borrowed capital at any time on the demand of the lender.
Vendor Financing- It is a loan lent by a company (vendor) and the borrower has to use the capital to buy that particular vendor’s products or services.
Final note!
There are many commercial financial mortgage lenders available in the market who are ready to dupe the borrowers. So, we advise you to compare all of them and their propositions & services and then select the most promising and credible mortgage lender.
Happy Investing!