Buying small business real estate differs greatly from financing a house. Business.org explores the lay of the land in commercial real estate loans.
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Commercial real estate loans are for the purchase, or renovation, of commercial properties recognized as owner-occupied real estate—meaning that the business must inhabit at least 51% of the property. Office buildings, retail centers, mixed-use buildings, industrial warehouses, apartment complexes, the car wash that Walt and Skyler bought in Breaking Bad—all commercial properties (though that last one was, ahem, a cash deal requiring no commercial loan; not the best example).
Any property that’s designated to make money is commercial real estate. It’s not the same as a residence, and commercial real estate loans are different from residential mortgages. Commercial business loans, because of the higher risk factor of small businesses, come under more scrutiny and require detailed business plans. In contrast, for a residential mortgage, a bank probably isn’t going to ask you what you have in mind for the living room’s feng shui.
Commercial real estate loans also come with shorter repayment terms than residential loans; a negotiable range of 5 to 20 years is the norm, as opposed to a 30-year home mortgage. Due to these shorter loan terms, there are also stiffer penalties in place for early payment on commercial real estate loans to protect the lender’s final take. Residential and commercial real estate market properties do, however, have one major factor in common: no amount of money can overcome an ill-selected location, location, location, so search and choose wisely (we recommend checking out Loopnet.com).