Tips on Commercial Real Estate Financing

Many financial institutions continue to rely on commercial finance as a profitable service area despite a recent slump in residential sales. Commercial real estate loans are seen as a safer investment for companies with large capital reserves. The commercial market is growing even as single family homes sales are plummeting.

To better understand how commercial real estate loans work, it is important to differentiate between commercial financing and residential financing. Residential financing deals with single family homes or small apartment houses with between 2 and 4 units, with loans being usually under several hundred thousand dollars. Commercial real estate loans and financing covers much larger amounts of money and can include office buildings and condominium complexes.

Commercial loans are seen as a secure place to invest, even though a bank or other investment firm might be adding more money into it. They are very strict about which businesses receive these loans. The companies must prove they have collateral, assets, and a business history shown on income statements. All these pieces of information are used to decide if the business is worthy of a commercial loan.

Commercial lending has additional benefits in that there is a greater range of products and opportunities available. Though the housing market tends to be cyclical, many commercial projects will take place even during market down times. Residential growth that has already taken place will continue to fuel further commercial business construction even when residential housing is on a slow down. Thus, commercial real estate loans are a desirable product for all lending institutions.

Small banks and financial institutions cannot compete on a level playing field with large capital banks, simply because of the large amounts of money needed to finance commercial products. This phenomenon makes the commercial market much less competitive than the residential market. Large banks increase their bottom line by being in the forefront of commercial, which benefits stockholders.

Like any investment, capital loss is always a risk. A project might become damaged or a business might default on payment once the project has been completed. But with enough insurance and a careful audit of financial records, the big banks and lending firms can profit from commercial real estate loans. This is a boon for the lending institution by expanding business and growing the economy as a whole.

For commercial financing and commercial real estate lending see East Coast Commercial Finance. Howard Brule provides professional article marketing services.

- Howard Brule