What are Commercial Land Loans?

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 commercial loans, and the one thread that ties them all together is the fact that the loan is used to further a business endeavor. Although the term "commercial land loan" usually is a reference to a raw land loan, it can also be used to describe a loan for the purpose of buying 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 being available.

Raw land loans, or commercial loans to buy undeveloped property, are the most difficult commercial land loans to obtain because the complete lack of development entails a huge risk for the lender. Although this type of commercial loan arrangement is possible, banking institutions usually do not loan large amounts of money for raw land loans unless the property has some intrinsic value, such as a strategic location. The amount of financing available with this type of commercial loan is usually based solely on the property value.

Land development and commercial construction 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 or she already owns or intends to buy. Development projects falling into this category of commercial land loans might entail the building 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 apartment buildings, warehouses and retail stores, sometimes fall into disrepair through neglect or age. A borrower can apply for a commercial property rehabilitation loan to make repairs to a property that he or she already owns or plans to purchase. In some cases, the lending company or banking institution will also loan a sufficient amount to purchase such a property. The loan value for these commercial land loans is usually based on the estimated property value after all of the repairs and upgrades have been made.