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The Process Involved in Commercial Loans Business people borrow money mainly for many reasons, but normally the common reasons are money as working capital, money to expand an existing business or money as a leverage equity in a commercial real estate venture. If you’re into one of these mentioned reasons and it’s your first time to apply for a commercial loan, you should have a different expectation as to how commercial loaning works when compared to a real estate commercial loan. Since the operation varies depending on the lender’s terms, some lenders will go a step higher as to assess the applicant’s company worth, including the applicant’s commercial properties, as all these will serve as collateral for the loan, but most lenders charge a higher interest rate for commercial loans as compared to home loans. It is important for a commercial loan applicant to weigh his/her options, before meeting up the terms of the loan payment, when he/she gets this general information that all banks require commercial loan borrowers to pay their loan earlier than the due date, because banks require a practice known as balloon repayment, which refers to the method of repayment from the borrower, who owes the bank, say for example a huge loan payable for 30 years, to pay the principal amount with the computed interest in a period of 10 years and, afterwards, pay the entire balance of the loan in one time balloon repayment. With this arrangement, borrowers, who will have difficulty meeting up with this form of requirement, will either take the option of re-qualifying for their loan or ask for re-financing the loan at the end of the balloon term. The borrower has also to consider the risk factors before entering into this form of requirement, such as: experiencing a cash-flow problem in the years immediately preceding the balloon term, to which the lender may require a higher interest rate; the possibility of the borrower not to be granted for another loan; the borrower’s properties may be foreclosed for non-payment of the balloon repayment amount. Once these risk factors have been assessed, another option for a borrower is to look at the terms of non-bank lenders who can offer less stringent credit requirements on commercial loans, some of them will offer long-term commercial loans without a balloon repayment but at a higher interest rate than those of the banks.
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After knowing the aspects of repayment of the loan, the next important step of a borrower is to determine how much can he/she apply for a loan with respect to the bank’s terms and that of his/her financial needs. Equally important are the following considerations for a borrower to prepare on hand in his/her calculations: how much cash will the bank likely to grant and how much money should the borrower make available to repay the structured loan. Another point to consider is that bank loans include requirement structures, such as: bank loans prohibit second mortgages, banks will require a down payment of 20-25% based on the amount of loan being applied; loan terms vary depending on the loan amount being applied, as well as the classification of the kind of business of the applicant.Why People Think Lenders Are A Good Idea