If you have never invested and secured financing for a commercial property before, you might have a misunderstood idea of it being the same process as financing for a residential property. The reality is far from this perception. The entire process of obtaining funds for investing in a commercial property from various sources is not the same as for residential property.
There are many considerations to be made as it requires much more planning and a significantly larger amount of money. As the property appreciated and depreciates, you will be potentially adding or decreasing your wealth while still being liable to pay off any loans you might have taken out.
This is why it is of utmost importance that you consider your own financial strength and approach vetted and trustworthy sources to do your research and obtain financing. What you need for your commercial property project is financing that is relatively low-risk, has longer payment terms and a manageable fixed interest rate.
If this is your first time investing in a commercial property, you might have no clue as to where you can get financing for your project. Whether you live in Australia or any other country, there are several ways you can finance your project including:
Conventional Loans from Banks
The most traditional way to finance any commercial property is through a bank. Banking is a regulated industry that provides both short-term and long-term loans based on the projection and financial strength of the borrower. If you are able to make your case, you can receive financing for your project but with very specific details.
Most commercial property investors tend to turn to Australia/New Zealand’s Big Four banks and apply for a loan. The commercial loans you receive will require a down payment and will only cover a limited amount of total debt, which you will pay off on a fixed interest rate over the agreed time period.
Mezzanine Debt Financing
Since banks only provide a certain percentage of the total debt, you need to find another source to raise the debt up to 90% in order to successfully invest in the project. Mezzanine debt funding can be received from non-banking or private lenders in the form of a subsidized loan.
Depending on the financial state of your project, there are lenders who will provide you with another portion of your debt. These loans are provided at fixed rates with long payment terms, giving you the opportunity to leverage your investment.
Senior Debt Financing
One of the other primary sources of funding for commercial property in Australia is through senior debt financing. These loans are similar to conventional loans that investors receive from banks. The main difference is that the investor is obligated to repay senior debt first in all circumstances. For instance, if the project goes haywire and the investor goes bankrupt, the first repayment will be made to recover the senior debt.
Besides banks, there are other funders who provide senior debt loans including non-bank, private and institutional lenders. You can obtain this loan through agencies like stamfordcapital.com.au.
Crowd-Sourced Equity Funding
Lastly, the investor can obtain financing from the public through crowd-sourcing. This requires the investor to receive small amounts of investments from a large pool of people and grant them a share in the business as an exchange.
While these are some of the common ways to finance a commercial property, you can find the right one for you by consulting with a financial expert.