What Are Some of the Most Common Types of Commercial Loans?

Types of Commercial Loans

There are several different types of lending programs designed to accommodate commercial and building loans. These programs vary in the requirements, terms, and loan amounts available and are highly dependent on the individual situation of the business or business owner. While each loan has its place in the commercial funding arena, each also has drawbacks. Each option should be weighed carefully with a financial advisor to ensure that the needs of the individual borrower are fully met.

1. The Real Estate Purchase Loan. This type of commercial loan is very traditional; it capitalizes the office building as its own collateral. It is feasible as both a commercial and a governmental guaranteed loan. Rates are generally competitive and calculated upon the Loan to Value (LTV) of the property.

2. Fixed Rate Commercial Mortgage. These types of loans are more manageable when it comes to a budget as the payments and the interest rate remain invariable during the term of the loan. Furthermore these types of loans offer stability over market fluctuations. Typically, the maximum LTV is 80%. Terms range from 5 years to 20 years.

3. Adjustable Commercial Mortgage. Many buyers use this type of loan to finance their office buildings. This loan has an adjustable annual rate of interest. As a general rule, borrowers are able to qualify for a higher amount with these types of programs. The payments and interests are subjects to increase during the term of the loan. As an alternative, some programs offer borrowers the option of making graduated payments or even increasing the loan amount in the future. Depending on the loan agreement, it is possible for the Adjustable Commercial Mortgage to actually cost less than the Fixed Rate Commercial Mortgage.