Commercial Land Loans ? Problems and How To Avoid Them ...

Commercial land loans ? that is, financing of land for commercial development ? are often quite a lot harder to get than other kinds of land loan, or other types of real estate financing. Requests for commercial land loans are often treated with considerable caution by banks and other financial institutions. The main reasons for this are:

The question of security ? the bank only has ?dirt? to secure its loan. Land does not in itself make income and so cannot in itself service a loan.
There are considerable political and economic risks involved in raw land that has not yet been approved by regulatory agencies.
Commercial land developments are by definition financed at the beginning of the project life cycle, making them the most speculative and thus the most risky.

In actual fact, developing land from its raw state into something on which you can site a commercial project is the most exciting and potentially profitable real estate activity in which you can be involved. So it?s worth finding ways to manage the risks. Here are some suggestions as to how to maximize the financing.

Take as much time over closing the deal as the seller and/or the market will allow. Ideally you want to complete the entitlement work before you close. In practice, it is seldom possible to do this, but the closer you can be to being fully entitled and permit-ready, the more leverage you can generate for your financing.
Do all you can to avoid bringing in third-party equity. You should endeavor to retain 100 percent ownership of the project at the initial stages. This way you avoid diluting the profitability of the project and increase its leverage potential.
Commercial land loans are usually completed very efficiently. Nevertheless you need to ensure you allow adequate time for the period of application. If you are in a hurry for instant cash initially, raise it by taking out a hard money land loan. This enables you to take your time and negotiate the best deal.
Explore the possibility of getting funds set aside in a land loan for pre-development costs. If you can use this to transform the land from ?raw? land to ?entitled? land, you will greatly enhance your ability to raise finance. It should also increase the LTV (loan-to-value) ratio you can attract. For completely raw land you will be fortunate to get 50 percent LTV and it can often be as little as 35 percent.

Commercial land loans are the only type of real estate financing for which the options have not increased in recent years. For most other types, there are far more sources where you can look for your loan. Nevertheless, if you have a well-thought-out commercial land project, you will certainly find lenders keen to accommodate you. Just adopt every means you can to make your project as attractive as possible to potential lenders.

Are you looking for a commercial land loan and worried about the credit crunch? Visit http://www.bizwrite.co.uk/realestate/lending.html to find out how you can access the biggest selection of loans in the country and get multiple loan offers from qualified lenders.

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Source: http://loan.learntrend.net/commercial/commercial-land-loans-problems-and-how-to-avoid-them/

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