Commercial land loans allow borrowers to purchase commercial property for business purposes. They include raw land loans, land development loans, and rehabilitation loans, with varying financing terms and difficulty to obtain. Loan value is based on the property’s value and potential after development or renovation.
Commercial land loans, also called commercial loans, are a type of loan that allows the borrower to purchase commercial property. There are many types of business loans and the one thread that ties them all together is the fact that the loan is used to promote a business. While the term “commercial land loan” is usually a reference to a raw land loan, it can also be used to describe a loan for the purpose of purchasing and renovating a building or establishing a line of credit for a land development project. . The financing terms for this type of loan vary, with short-term and long-term loans available.
Raw land loans, or commercial loans to buy undeveloped property, are the hardest commercial land loans to get because the complete lack of development comes with enormous risk for the lender. While this type of commercial loan arrangement is possible, banking institutions usually don’t lend large amounts of money for raw land loans unless the property has intrinsic value, such as a strategic location. The amount of financing available with this type of commercial loan is usually based solely on the value of the property.
Land development and commercial housing loans are the next step up from raw land loans. These commercial land loans are slightly less difficult to obtain, particularly if the borrower has a past history of successful land development projects or a working relationship with the banking institution. With this type of commercial loan, the borrower is extended a line of credit to develop land that he already owns or intends to purchase. Development projects that fall under this category of commercial land loans might involve the construction of a residential neighborhood or the development of a shopping mall.
A rehabilitation loan is another option on the commercial land loan menu. Commercial properties, including condominiums, warehouses and retail stores, sometimes fall into disrepair from neglect or age. A borrower may apply for a commercial property rehabilitation loan to repair a property that he already owns or intends to purchase. In some cases, the loan company or banking institution will also lend enough to purchase that property. The loan value for these commercial land loans is usually based on the appraised value of the property after all repairs and updates have been made.
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