How to find the best commercial mortgage rates

If you are considering getting into commercial real estate for business or investment purposes, make sure you know the difference between residential and commercial mortgage rates. Commercial mortgage rates are typically about 0.50% to 1% above the prime 30-year residential mortgage rate.

For example, the average annual interest rate for a 30-year residential loan has recently decreased from 3.94 to 3.89% – the average rate for commercial office buildings is currently 4.14%, 4.34 % for commercial apartment and 4.89% for full service. Hotel.

If you’re in the commercial real estate market, interest rates are key to keeping your loan repayments as low as possible. Compare loans from a number of lenders before signing on the dotted line – you might be surprised that some big banks offer competitive commercial loan rates. Use these tips to find the best commercial mortgages and avoid making real estate investing mistakes.

Where to look for commercial mortgages

Before trying to find the best commercial mortgages available, it’s important to understand where to look. Commercial mortgages are typically underwritten by banks, life insurance companies, and federal agencies, as well as intermediary lenders, which are entities that underwrite loans for sale to investors. Conduit loans, also known as commercial mortgage-backed securities, are bundled into a mortgage real estate investment conduit, or REMIC.

Mortgage real estate investment trusts like Blackstone Mortgage Trust, private equity lenders like Fortress Investment Group, and real estate investment trusts like SL Green Realty Corp. and Vornado Realty Trust also fund commercial loans. The government, however, only offers loans for certain types of properties. The Federal Home Loan Mortgage Corp., for example, only funds mortgages on apartments, and the Small Business Administration and the US Department of Agriculture only fund loans to business owners.

Regardless of the financing source, all commercial loan rates come with criteria that borrowers must meet. Non-income-generating home loans consider your personal financial history and finances related to your business. To qualify for SBA loans and USDA loans, you must also meet lender requirements for the best rates.

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How to Get the Best SBA Commercial Mortgage Rates

To get the best rates on an SBA commercial mortgage, you’ll need to get your business cash flow in order and create a solid business plan. In addition, you will need to increase your credit score if it is not excellent and demonstrate your experience in business management.

Your credit history — especially your debt repayment history — the cash flow generated by your business, your management experience, and the feasibility of your business plan determine the type of loan interest you will receive. Since the SBA uses this information to determine your eligibility and interest rate, you need to make sure your business plan is solid, your business has a cash flow in the dark, which you have demonstrated management skills and, last but not least, that you have good credit. .

The Small Business Administration offers two types of business loans. Decide which one best suits your situation.

1.SBA 504

The SBA 504 loan requires you to have a tangible net worth of less than $15 million and an average net income of less than $2 million after tax for two years prior. You can only use this loan for designated expenses, which include the purchase of land and buildings in addition to long-term machinery and equipment.

The loan matures in 10 or 20 years and has an interest rate of 4.59%. To apply, you must submit a number of documents, including a profit and loss statement and personal background statements.

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2. SBA 7(a)

The SBA 7(a) loan is a general small business loan that you can use for everything from buying real estate to financing long-term working capital. Like the SBS 504 loan, the SBA 7(a) requires you to meet certain criteria, including using the funds for business purposes only and investing a certain amount of equity. The variable interest rates for these loans range from around 4% to 4.5%.

Remember that variable rate commercial mortgages do not come with an amortization schedule or amortization schedule. Amortization occurs when you repay debt on a fixed repayment schedule in regular installments. Instead, variable rates fluctuate and are based on mortgage indices such as London Interbank Offer Rates or Prime Bank Loan.

How to Get the Best USDA Commercial Mortgage Rates

Because a borrower with a good personal credit history and a business plan is likely to get the best rate on a USDA loan, it’s important to make sure both are up to snuff when applying. If you don’t meet all of the agency’s criteria, you won’t be approved for a loan.

The USDA enhances the availability of private credit by guaranteeing loans to rural businesses through its Business and Industry Loan Guarantees. You can use the funds to buy land or buildings, refinance debt, buy equipment or modernize your business.

Eligible areas include towns or villages with less than 50,000 inhabitants that are not urbanized. Loans are available for up to $25 million with terms ranging from three to 30 years, and you must provide security valuable enough to protect the interests of the lender and the USDA. USDA underwriting requirements include:

  • You must have a realistic ability to repay the loan.
  • You need to get feasibility studies for your business.
  • Good credit is essential.
  • Your business must have a certain amount of equity.
  • You must have life insurance and present personal and corporate guarantees.

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No matter what type of commercial real estate loan you are looking for, you will need to follow the application instructions exactly. If you have a high credit rating, positive cash flow, and proper documentation, you’ll increase your chances of getting the best business loan rate possible.

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