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Everything you need to know about Commercial Property Loans

Points to Ponder for Commercial Property Loans

Most people know about residential property loans. But the same cannot be said for commercial property loans as they are perceived to be complicated. However, this article will bust this myth and offer clarity on commercial property loans that most people have in their minds. 

Let us check out essential aspects of commercial property loans provided by various financial institutions and get the loan successfully without any hassle. 

What is Commercial Property Loan?

A real estate property meant for business purposes (such as running an office, store, etc.) is known as commercial property. The loan availed to buy or renovate a business is called a commercial property loan.

Purpose of Commercial Property Loans

You can apply for commercial property loans for-

  • Purchasing a ready to occupy office space/ outlet
  • Purchasing an under-construction office space/ outlet
  • Renovating an office space/ outlet

Self-employed professionals and individuals from various industries are eligible to apply for commercial property loans. It will be smoother for self-employed professionals to get this loan. 

Features of Commercial Property Loans

Commercial property loans are different from residential property loans in many ways. The following are the features of commercial property loans.

  1. Interest Rate: Commercial property loan interest rate is higher and ranges from 9% to 15% per annum. The exact rate depends on the financial institution, the loan amount, and the tenure of the loan.
  2. Loan to Value Ratio: Also known as LTV, it is the proportion of the market value of the property that the lender is willing to finance. The LTV is less for commercial property as the risks associated are more. Specific lenders like PNB Housing offer 70% of the purchase price of the property or loan eligibility amount – whichever is lower.
  3. Processing Fee: The processing fee could be between 1% and 2%, plus the taxes for commercial property loans. The processing fee is not more than the given number. But before taking a loan check properly that there should be no hidden charges. So, it will be easy for you after taking a loan.
  4. Tenure: The repayment tenure is restricted to around ten years. If the loan amount is quite high, the tenure could extend to a total of 15 years. As compared to other loans this loan has good tenure.

Factors Considered to Provide Commercial Property Loans

Now, let us see the factors that affect your chances of getting commercial property loans.

  1. New/ Old Property: A new building gets more importance and consideration when compared to an older one. The risk quotient associated with commercial property loan is less for new buildings. This is obvious that the condition of the new building is much better than the old one so that is why the new property is preferred over the old one.
  2. Technical Evaluation: The evaluation of commercial properties is stringent. The elevators, staircases, fire safety precautions, emergency exits, etc. are double-checked to make sure they comply with the government rules. The process is simple and hassle-free nothing to worry about but these are important parts of a property loan.
  3. Approvals: The lender should have received all statutory approvals. There should be no reason for the space to be demolished in the foreseeable future. For your comfort because after you will get the loan repayment should be smooth and clear.
  4. Builder History: The construction history of the builder and the category are checked, especially for under-construction property, to ensure that the building will complete on time. Because sometimes these things can create a problem in the documentation. So, builder history is a very important part to be considered in commercial property loans.
  5. Valuation of Property: The property is evaluated by a professional team to arrive at the actual value of the property. It will help in fixing the loan amount and the subsequent property loan interest rate. The process is a hassle-free there is nothing like you need documentation. You can easily complete this process.

Before availing a commercial property loan, ensure that you have a plan in place to repay the loan. Also, take your business partners and loved ones into confidence. The best part of a commercial loan is that you can easily get the loan and start your business easier for the repayment of the loan amount you lend from the lender. 

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