Many large banking companies now rely upon commercial finance as a profit-making tool despite a decline in residential sales. Commercial real estate loans are perceived as a less-risky investment for companies that have large reserves of capital. Although the single family home sales are on the decline, the commercial real estate market is growing. If you?re struggling to understand the concepts behind commercial real estate loans, first examine the difference between commercial financing and residential financing. Residential loans are applicable for single families, whereas commercial loans apply to larger groups, such as a corporate office building or a large condominium compound. Most residential loans are given at a maximum of several hundred thousand dollars; commercial real estate loans are much higher, sometimes reaching millions or billions of dollars.
Commercial loans are seen as a secure place to invest, even though a bank or other investment firm might be adding more money into it. They are very strict about which businesses receive these loans. The companies must prove they have collateral, assets, and a business history shown on income statements. All these pieces of information are used to decide if the business is worthy of a commercial loan. Another benefit of commercial lending is that there are more opportunities and products available. The housing market is cyclical, but many commercial projects are built even in a economic downtown. Past residential growth fuels a need for more store and commercial business that does not stop when residential housing slows. This makes commercial real estate loans desirable for banks and lending institutions. Small banks and financial institutions cannot compete on a level playing field with large capital banks, simply because of the large amounts of money needed to finance commercial products. This phenomenon makes the commercial market much less competitive than the residential market. Large banks increase their bottom line by being in the forefront of commercial, which benefits stockholders. Despite the strengthened position, there is always the chance an investment could lose money. A natural or artificial disaster could cripple the project, or the company may not be able to continue payments upon completion. However, even in such rare cases there are ways to deal with the issues. Assuming the project was properly insured, a profit can still be turned on such commercial real estate loans. Such a result is good for every party involved in the process. For commercial financing and commercial real estate lending see East Coast Commercial Finance. Howard Brule provides professional article marketing services.
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