Commercial Interest Rates
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Getting loans at low commercial interest rates is crucial in the success of businesses, in general, and new businesses in particular. Usually, lenders look for the overall health of the borrowing company and its growth prospects. Loan tenure is another variable associated with commercial interest rates. For example, construction loans generally have a shorter tenure, while commercial real estate loans have a longer tenure. Newer companies may require paying higher commercial interest rates than the existing businesses, since lenders assume that they are taking higher risks when funding a new business.[br]
Commercial Interest Rates and Loans – Criteria
A business with good credit rating has greater chances of getting loans at lower commercial rates than those with poor credit rating. Lending institutions use many criteria to evaluate the businesses’ ability to pay back. For instance, in a commercial real estate deal, the bank may compare the value of the property with the loan amount. The commercial interest rates, standard of approval and terms of the loan are different for businesses and private borrowers. Apart from credit history and the debt to income ratio, banks also evaluate the borrowing company’s overall performance.
Commercial Interest Rates – Real Estate
Usually, commercial interest rates are in line with the US prime rate, and are higher than residential rates. In a residential loan, the emphasis is on the borrower’s ability to repay. In commercial real estate loans, the emphasis is on business viability and the collateral value of the company’s real estate.
For financing a commercial real estate loan, banks use certain criteria. For instance, some banks require the borrower to occupy a portion of the property before approving the loan. Generally, if the borrower is occupying more than 50% of the property, the borrower is eligible for low commercial rates.[br]
Before sanctioning a loan, most banks consider the level of ease of selling the property in the future. If it is deemed difficult to sell, the associated risk goes up, thus increasing the commercial interest rates on the loan. Banks always have a backup to recover the loan in case the borrower defaults.
