What are commercial equity loans?
Do you own a commercial property in need of renovation? If the answer is yes, consider a commercial equity loan. This kind of loan helps borrowers renew and improve commercial real estate. For example, let’s suppose you find a run-down building on an ideal location. You need to refurbish it so that it respectable and attractive to customers, and also to make it fit the style and purpose of your company. Commercial equity loans help business renovate properties so that they are right for their particular business.
If you plan to renovate your building into a green, energy-saving facility, you can save even more through a commercial equity loan. The SBA’s 504 program offers incentives for a building and/or renovation that:
- reduces energy costs at least 10%
- is an energy producing facility
- is a non-green orgreen manufacturing facility
The 504 program allows green businesses to finance up to 90% of the purchase or renovation cost at lower rates than conventional loans. If your commercial renovation involves the use of alternative or renewable energy, you’ll also receive significant tax incentives for using green energy and helping the environment. it sets an example for other business owners.
What can be utilized
Borrowers may utilize commercial equity loans for various purposes such as renovation of an office, putting funds in new projects or even paying off debts.
To take the loan borrowers are required to put their any commercial property as collateral with the lender. Collateral is needed to ensure the lender that the loan amount is fully secured.
Lenders provide commercial equity loans on the equity in the commercial property. To find the equity, lenders must find the market value of the property place as collateral. Then they subtract the total lending of the loan seeker out of the value of the collateral. The difference will be the equity in the property.
This clearly means that the loan is provided in the range of the equity. So larger the equity, greater the loan amount a borrower will be presenting as the loan. To take a bigger loan, borrows should place high valued commercial property as collateral as the debts of the borrowers remain almost the same.
Biggest attraction for borrowers opting for commercial equity loans is lower interest rate on it as compared to other secured loans. Reason being the borrower takes the loan on the equity which is in most cases remains lower than the value of the property and therefore this a limited amount. This in turn cuts down the risk in the loan and the lenders offer the loan at lower interest rate.
Commercial equity loans are generally difficult to obtain and require borrowers to have an excellent credit. The reason being that commercial equity loans are often for very large sums of money. Borrowers must provide evidence that the finished product is worth more than construction costs. Commercial equity loans help banks create liquidity, as there are fewer fees and relatively low interest rates as compared to traditional loans.
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