How is the property going to be titled i.e. (personally, partnership, LLC, corporation, or trust)?

Unlike residential loans, most lenders will require 20% of the purchase price as a down payment.

What is the difference between commercial property taxes and residential property taxes?

Commercial properties are traditionally charged at higher rate of 38%, where residential is taxed at 16%.

Will the property be owner occupied or an investor property?

Owner occupied property is owned for the purpose of operating a business at that site. An investment property is owned to generate a desired return and cash flow.

What documentation will I need when approaching a lender for a loan to purchase commercial property?

Lenders will request a variety of items. The following is a guide to help get documentation together prior to meeting with a lender. Different lenders will require different documentation.  These may include, but are not limited to:

1. Business Plan, or the past two years financials

2. Past two years personal and business federal tax returns

3. Personal financial statement (possibly on a specific form)

4. Property income information (rents)

5. Property expenses (statement of expenses from the seller)

6. Copy of the most recent tax bill

7. Signed real estate contract

What term (length of time) can I borrow money for a commercial property?

Most lenders lend money for 3, 5, or 7 years terms, but the payments are based upon a 20 or 25 year loan. Residential loans are typically 30 year loans.

Do they calculate a residential loan the same way they calculate a commercial loan?

No, commercial loans are based upon a 360 day year, residential loans are based upon a 365 day year.

What other expenses might I incur other than closing costs, bank fees and a down payment?

• Property appraisal (to determine the value for the lender)

• An Environmental study (to verify presence of hazardous materials, if any on the property).

• Inspection (for purchaser to examine the structural and mechanical systems of the property prior to the purchase).
  

What does cash flow mean, and how does it affect the ability to get a loan?

Cash flow is a product of income exceeding expenses and providing a return. If a property or its owners do not have enough income to afford the expenses a lender may not lend the funds.

Yes, they vary based upon the lenders appetite for risk, the size of the institution, and many other factors. Be sure to check with several lenders to find out what requirements may be necessary before committing to a specific lending institution.