When buying an office space, a retail outlet, or a piece of land for investment purposes, a commercial property loan is really helpful in funding the entire purchase. Acquiring the most favourable commercial property loan interest rate requires proper planning, research, and an excellent understanding of the factors affecting the interest rates.
We’ll take you through the key aspects that play a significant role in affecting commercial property loan interest rates and explore some tips on how to get the best deal.
Factors Influencing Commercial Property Loan Interest Rates
The interest rate you may be offered on a commercial property loan is determined by several factors. Some of these factors are:
- Credit Score: Commercial property finance has an underlying requirement for a good credit score. The higher the score, the better the interest rate. For example, if somebody’s credit score is low, then the interest rate may be higher.
- Loan Amount and Tenure: Higher loan amounts might lead to lower interest rates, whereas longer tenures tend to increase the rate of interest. If at all possible, opting for a shorter period to repay the borrowed amount will make the rates more attractive.
- Type of Property: The type of property will influence the risk value for lenders. Established office spaces in prime locations would carry less risk for the lender, whereas underdeveloped or niche properties would attract higher interest rates due to risk factors.
- Down payment: A higher down payment means a reduced loan-to-value (LTV) ratio; conversely, it may result in more favourable rates. Lower LTV is typically viewed as less risky by lenders.
- Business Financials: This is when lenders check out the financial health of your business before they can give you that loan. Good financial statements combined with a regular flow of income and stable cash flow means that you will be regarded as one of the low-risk borrowers.
How to Get the Lowest Commercial Property Loan Interest Rates?
Using this as a base knowledge, here is a real-life guide to help you get preferable interest rate on your commercial property loan:
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Improving Your Credit Score
Try to know your credit score before applying for a commercial property loan. In case it is not good, improve your credit score first. Pay off old debts, clear all delayed payments, and maintain credit utilisation at a low level. Ensure your credit score is 750 or more to get better interest on your loan.
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Check the Loan terms
The best way to get a favourable deal is to check different loan options. Above all, look for the interest rate as well as the terms of the loan, the fees, and other charges included in the loan. You can also use a commercial land loan EMI calculator to compare the total cost of borrowing.
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Tenure of Loan
As mentioned in the previous section, the interest rate will be affected by tenure. However, the longer the tenure, the lower the monthly EMI will be. With shorter tenures, EMIs are usually higher, but you pay less on interest costs during the entire term. A tenure that seems fit for your paying capacity and a rate that keeps the overall cost down should be ideal.
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Negotiate Terms with Your Lender
A borrower, based on the credit profile and business stability, has a very good chance of negotiating terms with a lender to lower the interest rates, flexible repayment schedule, or reduce processing fees. You get fewer prepayment charges. If you are moving an existing loan from a different lender, you can get better terms because you are part of a balance transfer.
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Down Payment
A significant down payment you make on a commercial real estate loan will impact the interest rate for your loan. Higher down payments reduce the risk to the lender and probably result in lower rates. You should aim to pay at least 20-30% of the property value as a down payment to obtain better loan terms.
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Explore Exclusive Offers
The most favourable commercial property loan interest rates can be looked for with a financier who is most known to offer attractive rates and terms, as some banks and financial institutions offer exclusive commercial property loans that cater to your requirements and offer highly specific solutions. For example, ICICI Bank is offering feature-packed Commercial Property Purchase Loans at attractive interest rates and flexible tenures in favour of buying or revamping commercial spaces.
Commercial Property Loan Documentation Checklist
Below are some of the relevant documents you’ll require to apply for commercial loan:
- Proof of Identity & Residence: Aadhaar Card, PAN Card, passport, or driving licence.
- Proof of income: Income tax returns for the past three years, Balance sheets, and Profit & Loss account statements
- Ownership of Business: Builder Buyer Agreement’s Copy, Title Deeds Copy.
- Bank Statements: Current account statements for the last six months
Eligibility Criteria for Commercial Property Loan
To avail a commercial property loan, you have to fulfil the following eligibility criteria that may vary for different lending authorities. Generally, the criteria are as follows:
- You are a resident Indian.
- You are a salaried individual or a self-employed professional/non-professional.
- Your business must have been operating for more than three years.
Conclusion
Improving your credit score, comparing lenders, and making a significant down payment can get you commercial property loan interest rates aligned with your preferences. A commercial land loan EMI calculator is also helpful to make better financial plans for your investment.
Following the above best practices can get you an attractive rate of interest for your commercial property loan to help you invest or grow your business efficiently.