A commercial property loan is typically used to purchase or improve office buildings, retail space, or other types of commercial property.
Commercial property loans have higher interest rates than residential mortgages, and often require a larger down payment.
Types of Commercial Property Loans
The following are the different types of commercial property loans:
- Conventional loan – The most common type of commercial property loan, these loans are typically issued by banks or other financial institutions and are repaid over years, with interest.
- Small Business Administration (SBA) Loan – these loans are backed by the Small Business Administration
- Hard money loans – These are typically short-term loans with high-interest rates.
Applying for a Commercial Property Loan
There are a few steps you’ll need to take to apply for a commercial property loan.
- First, you’ll need to find a lender that offers this type of loan.
- Once you’ve found a lender, you’ll need to fill out an application and provide the necessary documentation, such as financial statements and proof of income.
- The lender will then review your application and decide whether or not to approve the loan.
- If you are approved, you’ll need to sign a loan agreement and make any necessary down payments.
- Once the loan is finalized, the funds will be disbursed and you can use them to purchase the commercial property.
Repaying a Commercial Property Loan
If you’re thinking about taking out a loan to buy a commercial property, you’ll want to make sure you understand the repayment process.
- Commercial property loans typically have a repayment period of 5 to 25 years, and the repayment schedule will be determined when you apply for the loan.
- During the repayment period, you’ll make regular payments of principal and interest, and you may also be required to pay property taxes and insurance.
- Some loans also have a balloon payment, which is a lump sum payment that’s due at the end of the repayment period.
Before you take out a commercial property loan, make sure you understand the repayment process and are comfortable with the terms. This will help ensure that you’re able to make the payments and avoid any potential financial difficulties.
Commercial Property Loan Interest Rate
If you choose to opt for a commercial property loan from various lenders, the fees, and charges applicable to your loan are as listed below :
|Applicant Category||Effective Rate of Interest (per annum)|
|Salaried/Self-Employed||9% p.a. onwards|
The charges applicable to your loan are as elucidated below:
|Fee Category||Applicable Charges|
|Processing Fee||Up to 0.35% of the loan amount|
|Foreclosure Charges||4% of outstanding loan amount + GST|
The Pre-payment and foreclosure charges for individuals are as listed below:
|Individual||Flexi Loan||Term Loan|
|Part Payment Fees||NIL||NIL|
The Pre-payment and foreclosure charges for non-individuals are as listed below:
|Non-Individual||Term Loan||Flexi Loan|
|Foreclosure Fees||4% on the outstanding principal||4% on the sanctioned amount during the Flexi Interest Only Loan Repayment Tenure and 4% on the available Flexi Loan Limit during the Flexi Term Loan Tenure|
|Part Payment Fees||2% on the Part Payment Amount||NIL|
|Residency||Must be a citizen and resident of India, who owns property in Delhi NCR, Mumbai and MMR, Chennai, Hyderabad, Bangalore, Pune, and Ahmedabad.||Must be a citizen and resident of India, who owns property in Delhi NCR, Mumbai and MMR, Chennai, Hyderabad, Bangalore, Pune, and Ahmedabad.|
|Age||28 – 58 years||25 – 70 years|
|Employment Status||Employed in the public, private or MNC sector.||Should have a regular source of income.|
|Income||Varies from city to city, starting from Rs. 25,000 to Rs. 35,000.||Varies from city to city, starting from Rs. 25,000 to Rs. 35,000.|
|Experience||Over 3+ years of experience.||Over 5+ years of experience.|
Special Loan Schemes
There are special loan schemes for commercial property loans in India. These schemes offer lower interest rates and relaxed repayment terms. They are designed to meet the needs of businesses and help them grow. Some of the popular schemes are:
- SBI Commercial Property Loan Scheme
- HDFC Bank Commercial Property Loan Scheme
- ICICI Bank Commercial Property Loan Scheme
Financing for commercial real estate can be a complex process. However, it is also important to know the facts about financing for commercial real estate, so you don’t get caught unawares or uninformed. This blog post is designed to help you understand what commercial property loans are, what they can do for you, and how you can get the best terms on your next commercial loan.
Frequently asked questions (FAQ’s)
What are commercial property loan interest rates?
Interest rates for commercial property loans can vary depending on the type of loan, the lender, and the market conditions at the time of borrowing.
What are the eligibility requirements for a commercial property loan?
To be eligible for a commercial property loan, you typically need to have good credit and a strong business history. You may also be required to provide collateral, such as the property you are seeking to purchase.
What are the benefits of a commercial property loan?
Commercial property loans can offer several benefits, including the ability to purchase property and to finance the purchase of property without tying up other business assets, and to get a loan with terms that are more favourable than other types of loans.
How do commercial property loans work?
Commercial property loans work by using the property as collateral for the loan. This means that if the borrower defaults on the loan, the lender can foreclose on the property and sell it to recoup their losses.
Darshan is an up-and-coming Investment analyst making headway in the field of capital markets. He has completed his Chartered Accountancy and CFA Level 1 exam. He is currently working as a Credit Associate in Wint Wealth.