Maximizing Commercial Loans
It is important to understand the terms of the loan and how your business may change in the near future to ensure you will be able to make the payments & do not risk losing your business. If the category you are in, the broader economy or your business turn south during any point in the loan you could end up losing your business unless you have a savings cushion & a plan to survive soft patches.
Obtaining a commercial loan is a similar venture to that of acquiring a private loan, with the primary difference being that the mortgage in question goes towards the cost of a licensed commercial property rather than a residential home or living space. When you as a business, team, private party, individual entrepreneur or partner decide to take out a commercial loan, you will be considering the variables that will have the deepest affect on your financial future and that of the property. Depending on the broker you choose, these factors may include loan term length, type of interest rate, APR itself, style of amortization (or maturity), monthly payment and loan closing costs. The principal and interest payment that totals up your monthly bill will be calculated with these specifics in mind, and the more you are able to get the monetary odds in your favor in the quicker your business or partnership will be able to get on its feet and rolling after the mortgage is paid off.
The Three Categories of Payment Style
You will find not one but three distinct types of payment which this calculator gives as a response to information about the loan such as total amount owed, loan life term length and amortization term, and annual interest rate. As a result of this data, the tool will spit out the financial picture of your monthly payments according to three different ways of billing.
First, the principal and interest payment, or P & I, accounts for exactly that – the balance of the sum owed towards the mortgage amount itself, and the APR owed on that sum. This P & I figure does not include taxes, insurance, or any other commercial property ownership fees. This is the most basic payment number, and one that represents how most borrowers will reduce the amount on their mortgage.
Secondly, the interest-only payment represents the amount paid on a mortgage in which the borrower pays only the APR during the initial pay off phase, until the full interest is completely or nearly accounted for, and only then does the borrower begin to pay off the principal. This is different from the above P & I scheme in which borrowers in the first few months or years of the loan pay mostly interest and less principal, and gradual the ratio shifts to be mostly principal and less interest by the very end of the loan’s life.
Finally, we encounter the balloon repayment method. In this scenario, which is far more common among commercial real estate than residential, the principal is left unpaid in full until the absolute maturity of the loan. At this point, there is one large payment left for the borrower to make – the “balloon”, so to speak – that concludes the life of the loan and exempts the payer from any future obligations to it once it is paid. Balloon style loans may either have fixed APRs or adjustable, floating interest rates, depending on their brokerage and origination and associated fees.
Furthermore, the amortization schedule, which shows a graphical visualization of by exactly how much and how often the balance of the loan reduces over time in any of these payment circumstances, is going to be the best way for the commercial borrower to visually express which is the most pertinent way to go.