Commercial Property Financing

Financing basically means investing one’s money into a business or an asset (for personal use) which belongs to someone else. Commercial property financing means providing finance to a project which is going to be of a commercial nature. It could be a shopping complex, office buildings, a health care centre, motels etc. Commercial property is any property which generates revenue for the company owning it. Financing is done by banks, financial institutions, insurance companies, private sector banks as well as some multinational companies who deal in real estate for business purpose. Commercial financing is a long term funding done at a fixed permanent rate.

Obtaining commercial property finance is a bit more complicated then a personal finance as the person/company desiring such a loan would not be occupying the property for personal use, therefore the risk factor involved is much greater. In case of the real estate prices falling below the financed amount the applicant may default on the pay back. For these reasons the rate of interest charged on commercial property finance is much higher than personal finance. Before a commercial finance is approved by any institution the borrower is asked to deposit 1 to 2% of the loan he is seeking, to confirm his commitment to the transaction and once the deal is sealed the amount is refunded. After the negotiations are through the legal documents stating the terms and conditions of the contract are signed and sealed between the parties

While financing a commercial property certain factors are taken into consideration such as the usage of the property, where the property is located, what commercial purpose is it proposed to be used for, size of the property, risk factor for the lender. The value of the commercial property is not based on the current value but on the expected value that the business will earn in future. Also the documentation for the financing have to be scrutinized thoroughly and the following factors play a very important role in acquiring the finance they are financial stability of the persons seeking finance, plans of the property concerned, business feasibility of the property etc.

Finding a right commercial financer is a very crucial decision because not only would he be financing the property but should also allow the business to grow. The financer has to also understand that a commercial finance is much more than money; it is an investment in the experience of the borrower and a long term relationship as a finance partner.