Question 1

What is financing in commercial real estate?

Accepted Answer

Financing in commercial real estate is a method of raising funds to complete a property development project.

Few developers have enough funds to self-fund projects on their own, and even if they did this is not an efficient use of capital.

Most developers seek to raise finance to fund a greater portion of the deal.

In most cases, the developer puts up a small deposit, typically 15-25 percent, and goes to a bank, specialist lender or consortium of inventors to finance the rest.

Question 2

How much down payment do you need for commercial property loans?

Accepted Answer

This will depend on your lender’s credit rating and the type of project you are developing.

But most lenders require at least 15 percent for a small residential project and up to 20 percent for a large commercial project.

Any development seen as high risk by the lender may require a higher deposit of between 20 and 40 percent.

Always speak to your lender or finance broker before committing to a loan because deposit requirements are negotiable.

Question 3

What is a commercial equity loan?

Accepted Answer

A commercial equity loan is a financial arrangement that allows you to tap into the equity you have built up in your portfolio.

The loan is secured against the equity held in your property portfolio.

The advantage of this type of loan is that interest rates are much lower than using an unsecured loan.

They are also available at short notice because most banks consider this type of loan to be relatively low-risk.

Question 4

What is the meaning of development finance?

Accepted Answer

Development finance is a specialist finance agreement designed to specifically meet the needs of property developers.

These types of loans are usually staged, which means funds are released once key stages of the project have been completed.

Staging payments like this reduces the risk to the lender and keeps interest payments to a minimum for the developer.

Such loans are usually provided by high-street banks, but some specialist lenders also offer competitive deals.

Question 5

Is the interest rate higher for commercial property?

Accepted Answer

The rate of interest you pay will depend on several factors including; your personal credit rating, your experience in the sector, the security you can provide, the deposit you put down and the type of project you are developing.

But generally speaking, commercial property finance is seen as relatively low risk compared to other types of finance.

An experienced developer with a sound business plan should be able to raise finance at a very competitive rate of interest.

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