Owner-occupied commercial real estate loans, also referred to as business mortgages, are used to buy or refinance real estate that will be primarily used for commercial purposes. Small business owners typically use these loans to refinance existing properties to increase cash flow or lower monthly payments, or to buy a building to operate their company out of. We’ll go over how to get an owner-occupied commercial real estate loan in this blog post, as well as how it can be applied to buying a new home.

What exactly is an owner-occupied commercial property? Let’s first define that term. The owner of the business (the borrower) must occupy at least 51% of the property for it to be deemed owner-occupied. Thus, if the property is a multi-tenant building, the borrower is required to occupy the majority of the space. The property must also be used for commercial activities, such as as a store, office, or factory.

Borrowers must submit proof of their company’s financials, such as income statements and balance sheets, in order to be approved for an owner-occupied commercial real estate loan. In addition to the value of the property and potential for income, lenders will also consider the borrower’s credit history and score. Taking into account the loan’s loan-to-value ratio (LTV), which is calculated by dividing the loan’s amount by the property’s value, is another step.

A down payment of at least 20% of the property’s purchase price is typically needed by the borrower after the lender approves the loan application. For borrowers with good credit and solid financials, some lenders might provide loans with a lower down payment requirement.

The interest rate on an owner-occupied commercial real estate loan may be lower than on a conventional commercial loan because the lender considers the borrower to be less risky, which is one of the advantages of such a loan. Because it is regarded as a business expense, the interest paid on the loan may also be tax deductible.

When using an owner-occupied commercial real estate loan to buy a new property, it’s crucial to keep in mind that the property must be used primarily for commercial purposes. This means that even if the borrower rents out a portion of the property to another business, it must still be the borrower who uses the most space. The asset cannot be used as a passive investment or as a rental property; instead, it must be used for the borrower’s primary business.

The potential for income and cash flow from the property will also be evaluated by the lender, it is important to note. As a result, they will consider both the borrower’s capacity to make mortgage payments out of the rent or other income the property is able to produce and the property’s capacity to generate income through other means. Lenders are more likely to approve a loan on a property with high income potential and cash flow. Additionally, the lender may ask for a personal guarantee from the borrower, which would make them personally liable for the loan’s repayment in the event that the business is unable to.

The loan term is a crucial factor to take into account when using an owner-occupied commercial real estate loan to buy a new home. The time frame for loan repayment is known as the loan term. The typical loan term for a commercial real estate loan is between 10 and 25 years, though this can change depending on the lender and the particular loan. Both the total amount of interest paid over the course of the loan and the monthly payments will depend on the loan term. It’s crucial to give careful thought to the loan term and select a length that works with both your financial situation and business strategy.

As a result, small business owners looking to buy or refinance a property to operate their business out of may find an owner-occupied commercial real estate loan to be a great choice. Borrowers can obtain a loan with a lower interest rate and perhaps even tax advantages by providing documentation of their financial situation, credit history, and score, as well as the value and income potential of the property. In order to be eligible for this kind of loan, the borrower must own or lease at least 51% of the property and use it for commercial activities. An owner-occupied commercial real estate loan can be a potent tool for business expansion and monetary success if the borrower meets the criteria, has a good plan for the property, and chooses the right loan term.

F2H Capital Group is a debt advisory firm specializing in negotiating the best terms for your commercial real estate projects. The company offers a range of financial products and services, including fixed loans, bridge loans, and construction loans across all asset types. Please contact us for any of your financing needs.