Commercial Real Estate Financing

Understanding Commercial Real Estate Financing


The desire of every business, including commercial real estates, is to grow. That growth is easily noted in terms of an increase in sales or production, better technology, property renovations and more innovations. The mentioned factors require funds. The funds make it possible for small entities to take part in investment opportunities promising high income. The funds, however, carry along huge risks such as market and liquidity risks, because the value of the property is dependent on the market value and demand. The interest rates are a risk that affects the payable dividends.

A commercial real estate loan refers to a mortgage meant for the purchase of a commercial property. In case there is any construction necessary for the property, the loan chips in. Commercial property includes all the property owned by a business and that help to generate revenue. Examples include hotels, offices and malls. So how do these loans work? The investor chooses the best financing option and lender, offers collateral and receives the credit leading to the creation of a legally binding contract. Where the investor is unable to repay the loan, the creditor can seize the collateral through a legal claim known as a lien.

Commercial Real Estate Financing Options


An investor needs to understand that the real estate financing options are unequal. Knowing that makes it easier to narrow down to what the business requires during decision making.

There are many real estate financing options you can get through ABG International Inc, as described below.

  • Government loans that help investors who fail to meet the requirements of other lenders. The government may guarantee the loans provided by financial institutions such as banks instead of dealing directly with the specific small businesses.
  • Commercial backed financing which gives liquidity to both the lenders and the investors.
  • Mezzanine financing that allows businesses to acquire more capital than they would in regards to the senior debt. That resource lies between equity that has very high risk and the top liability that has a small risk. The mezzanine fun consists of the preferred equity or subordinated debt.
  • Equity loans that allow investors to have equity as their collateral.
  • Traditional loan. This is a loan from any bank. Most businesses use this as their financing option.

The interest rates of various commercial real estate funds differ. The traditional loans have a variable or fixed interest rate (5-7) %. The hard money loans that have their origin from private lenders have the highest rates (10-18) %. In conclusion, there are very many financing options to choose from. The most common one being the traditional loan. In case you are not sure about the financing option that compliments your business, please contact ABG International Inc for help.