In the world of commercial financing, it’s crucial to find a loan that meets the needs and expectations of the borrower. Your ability to profit and pay back the loan successfully depends primarily on the terms of the loan you need to secure to purchase the property.
Most borrowers are familiar with the two most important factors of a loan:
- Interest Rate
- Repayment Period
You want the lowest interest rate possible, while choosing the number of years that makes sense for paying back the loan given the amount of revenue that you expect to receive. But there are other potential methods to pay back a loan, and one that is of interest to many is an interest only commercial loan.
Introduction to Interest Only Commercial Loans
Interest only loans are loans where the borrower pays back only the interest. It’s a method of reducing the monthly payment substantially for typically between 1 to 10 years. As a commercial property owner, the benefits of an interest only commercial loan include:
- More Money to Invest – With lower monthly payments you can put more money back into the property.
- More Time to Grow – It can take a lot of time for commercial properties to become profitable. By giving yourself lower monthly payments up front, you can potentially purchase a commercial property with less urgency to profit substantially right away.
- Large Loan – In some cases, an interest only commercial loan may also be a larger loan. It can allow you to purchase a property you may not be able to afford right away, but can project to afford in the future.
These benefits make interest only loans a popular choice for borrowers. But they are not always the best choice for most commercial property owners. Interest only loans are a far greater risk for lenders, so lenders tend to require higher interest rates that may make it harder to profit from the property.
Similarly, the benefit of paying interest up front is also a potential risk to borrowers down the road. After the interest only payments have been completed, the loan is amortized and you start paying off the principle in a shorter time frame. In some cases, the total monthly cost of the loan can be overwhelming.
Interest only commercial loans are also becoming less common because they are hard to forecast, and many commercial loan experts now recommend against them. Still, they remain a part of commercial lending and in some cases they represent an important option to keep available for those that need them.
Seeking a Loan? We Can Help
If you’re in need of a commercial loan, the best decision you can make is work with qualified commercial lending experts to point you in the right direction. CRE Lender is proud to provide outstanding commercial lending help, and is ready to guide you in the direction of a commercial loan that makes sense for your needs. Sign up with CRE Lender today to find out more about the services we offer and how we can turn your dreams of commercial property ownership into a reality.
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