Pennsylvania Commercial Real Estate Loans

Unlike home mortgage loans, commercial real estate loans are made with one purpose in mind, to make a profit from the sale or use of the property. This can take the form of purchasing land for development, multi-unit buildings to be used as condominiums or rental units, and retail space such as strip malls. There are different financing and tax structures when it comes to commercial real estate loans.

Borrowers should know a few things about this financing process up front. First of all, the appraised value of the property is a key factor since banks almost never finance more than 75 percent of the property's value. If the borrower will be the only one using the property, the borrower's personal financial status will be assessed by the lender.

Commercial Residential Property Loans

Most commercial lenders want the buyer to pay 20 to 25 percent of the purchase price. Two debt ratios will be the basis of the available loan amount. The debt service coverage ratio is the more important of the two. It is comprised of the ratio of the property's net operating income, usually rents, divided by all of the expenses involved with managing the property. The higher this ratio is, the better the loan.

When looking for a commercial real estate mortgage, understanding how these loans are made is a key factor for a borrower. In the world of commercial real estate, there are dozens of types of commercial loans, most of which have been designed to meet specific needs faced by commercial loan borrowers. From pre-construction loans to short-term loans, preparing a comprehensive business plan and discussing it with a lender can be the first step toward finding the right loan for every circumstance.