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- Important Things To Know About Commercial Real Estate Loans
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## Important Things To Know About Commercial Real Estate Loans

Commercial real estate loans differ significantly from home loans. They are actually much more complicated as their terms are very different compared to home equity loans. This is one of the reasons why most investors are afraid to venture into the commercial real estate market.

Smaller residential real estate investors typically limit themselves to anywhere from four to 10 properties in the hundreds and thousands of dollars before lenders conclude that this is a sufficient level of risk to no longer lend. Commercial real estate loan requirements can vary significantly between private lenders and banks. Also, the loans held in a single lender’s portfolio may vary depending on the lenders’ perceived risks.

**Commercial bank loans **

Banks usually want you and your partners to offer at least 20-25% of the property’s value as a down payment. For example, if the property is worth around 4 Cr, you need to pay around RS 80,000-1 cr as down payment. Also, recent studies have shown that most businesses fail due to lack of sufficient capital to meet needs.

For this reason, banks often require a company to maintain a significant cash reserve that can be used when cash flow is insufficient to make loan payments. This financial requirement is in addition to a hefty down payment. One strategy some commercial investors use is to borrow as much money as possible (even at higher interest rates) to provide enough capital to build the business and thereby increase cash flow.

**Private sector business loans **

Private lenders or non-bank lenders usually offer less stringent requirements for commercial loans. There are some lenders who require a smaller down payment (between 10-15%). These lenders often agree to carry the loan amount for up to 20 or 30 years until it is paid off in full (in most cases). However, they charge a slightly higher interest rate compared to banks (1% or 2% higher than bank rates).

But when you do all the math, a higher interest rate may not seem as expensive as it first appears. Calculate the cost of the higher interest over the term of the loan and compare it to the cost you pay to open a new loan (2 or 3 times when the payment is due).

The emergence of private or non-banking lenders is challenging banks on their traditional lending terms. While banks continue to tighten loan sanctioning requirements, these private lenders are moving towards a higher share as it makes it easier to qualify. Therefore, if you are looking for a smaller commercial loan (less than 15 kr) or an average loan amount (less than 35 kr), take the time to find lenders who can offer you acceptable time and term limits. .

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