Buying real estate for your small business can can be exhilarating and fun, but it can also be a stressful process. If you’re looking to purchase commercial real estate, it’s imperative that you know what you are getting into and how financing works.

What is Commercial Real Estate Financing?

Essentially, it’s purchasing/renting a piece of land that is meant for commercial use. Just like you would get a mortgage for your home, you will also need special financing to obtain land meant for commercial purposes. However, the big difference is that commercial financing is generally taken out by an S-corp or a limited liability company. That is, while you would finance a residential property as an individual, you finance commercial property as a commercial entity, or a business. Your name will not appear on the dotted line in a commercial instance; your company’s name will, instead.

What Do I Need to Finance Commercial Real Estate?

Generally speaking, you will need to have a lien on your commercial property in order to finance it. Basically, a lien is a guarantee from the debtor to the creditor that the money owed on the property will be paid back. Essentially, if you are unable to pay back the money required to own the commercial property, the creditor may be able to seize that property. Just like if you aren’t able to pay your residential mortgage, you may face forclosure on the property. Also similar to residential real estate, you will need to put down a down payment on your commercial property, as well. Generally this is between 20%-30% of the property’s overall value.

What Are My Payment Options?

Just like with residential real estate, you’ll need to comply with a payment schedule to pay off your commercial real estate. Generally speaking, commercial financing comes with two options: a short-term option where you pay off the property in 3 years, or a longer term option where you pay off the property between 5 and 10 years.

If you choose the longer-term payoff, then the best option is a standard amortized payment that’s similar to residential mortgages. That is, you pay a set amount each month until the property is totally paid off. Buying a commercial property can be challenging, but most business owners agree that the payoff is worth the stress. We wish you well in your future business endeavors.

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