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Can You Get a HELOC for Your Commercial Property?

Updated: Mar 4

If you're a commercial property owner looking for flexible financing options, you might be asking, “Can you get a HELOC on a commercial property?”

If you haven’t yet heard of Commercial Equity Line of Credit (CELOC), it could be a valuable tool in your financial toolkit.

A CELOC is a HELOC on commercial property. It’s specifically designed for commercial properties, offering a revolving line of credit based on the equity in your property.

Let’s explore what a CELOC is, its benefits, and how you can secure one for your commercial property.

What is a CELOC?

A commercial HELOC, or CELOC, is a financial product that allows commercial property owners to leverage the equity in their property to access funds as needed.

Similar to a home equity line of credit (HELOC) for residential properties, a CELOC provides borrowers with a revolving line of credit that they can draw from as necessary, up to a predetermined limit.

Unlike traditional commercial loans or mortgages, which provide a lump sum of money upfront, a CELOC offers more flexibility by allowing borrowers to access funds on an as-needed basis.

This makes it a great option for commercial property owners who require financing for various purposes, such as renovations, expansions, or day-to-day operational expenses.

image of the inside of an industrial skyscraper all white

Some key features and considerations specific to CELOCs for commercial properties include:

  • Collateral: CELOCs are secured by the equity in the commercial property, providing lenders with assurance and potentially allowing for more favourable terms and higher credit limits.

  • Revolving credit: CELOCs offer a revolving line of credit, meaning that as you repay the borrowed amount, the available credit replenishes, providing ongoing access to funds.

  • Variable interest rates: CELOCs typically come with variable interest rates, which may fluctuate over time based on market conditions. This can offer both advantages and risks to borrowers, depending on the prevailing interest rate environment.

  • Credit limits: The amount you can borrow with a CELOC is determined by the equity in your commercial property, your creditworthiness, and the lender's criteria. Generally, lenders will allow you to borrow up to a certain percentage of your property's appraised value minus any outstanding mortgage balance.

  • Draw periods and repayments: CELOCs typically have a draw period during which you can access funds, followed by a repayment period. During the draw period, you can borrow funds as needed, while the repayment period requires you to repay the outstanding balance, often with a combination of principal and interest payments.

Benefits of a CELOC

Now we know what a HELOC on a commercial property is, let’s explore some of the key benefits it offers to commercial property owners:

Borrowing Flexibility

One of the primary advantages of a CELOC is its flexibility.

Unlike traditional commercial loans that provide a lump sum of money upfront, a CELOC allows you to access funds as needed, giving you the flexibility to manage your finances more effectively.

Whether you need financing for property improvements, working capital, or unexpected expenses, a CELOC provides you with the freedom to borrow only what you need, when you need it.

Lower Interest Rates

Another significant benefit of a CELOC is that it typically offers lower interest rates compared to other forms of commercial borrowing, such as term loans or lines of credit.

image of the side of a gray industrial complex during the day

Because CELOCs are secured by the equity in your commercial property, lenders are often willing to offer more favourable interest rates, making them a cost-effective financing option for commercial property owners.

Additionally, since you only pay interest on the amount you borrow, you can save money on interest costs by keeping your outstanding balance low.

Potential Tax Benefits

In addition to offering lower interest rates, a CELOC may also provide potential tax benefits for commercial property owners.

In many cases, the interest you pay on a CELOC used for qualified commercial purposes may be tax-deductible.

However, it's essential to consult with a tax advisor to understand the specific tax implications of using a CELOC for your commercial property and ensure compliance with tax laws.

Can You Get a HELOC on a Commercial Property?

Now that we've explored the benefits of commercial HELOC loans (CELOCs), can you take a HELOC on commercial property? Yes! By now, you should know that you’ll want to explore a CELOC for your commercial property.

Here’s how to go through the process.

Research Lenders

When it comes to obtaining a CELOC for your commercial property, it's essential to research lenders who specialize in offering this type of financing.

Start by compiling a list of banks, credit unions, and online lenders that offer CELOCs for commercial properties. Look for lenders with experience in commercial real estate financing and a track record of providing competitive terms and excellent customer service.

Consider factors like interest rates, fees, credit requirements, and customer reviews to narrow down your options and find the right lender for your needs.

Apply for Pre-Approval and Approval

Once you've identified potential lenders, the next step is to apply for pre-approval and final approval for your CELOC.

The application process typically involves submitting detailed financial information, including:

  • Income statements

  • Balance sheets

  • Property tax assessments

  • Rent rolls

This is to demonstrate your creditworthiness and the value of your commercial property.

Be prepared to provide documentation of your business's financial health, including cash flow projections and business plans, to support your application. The lender will evaluate your application based on factors such as your credit score, income, debt-to-income ratio, and the equity in your commercial property.

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Go Through the Underwriting Process

Once you've submitted your application, the lender will initiate the underwriting process to assess your eligibility for a commercial CELOC.

This process typically involves a thorough review of your financial information, including property appraisals, credit checks, and income verification. The lender will evaluate the value of your commercial property, the amount of equity you have, and your ability to repay the line of credit based on your financial situation.

You might need to provide additional documentation or information as requested by the lender to support your application.

Review the Agreed Upon Terms

After you've been approved for a commercial CELOC, carefully review and understand the terms and conditions of the agreement before signing. Pay close attention to details like the credit limit, interest rate, repayment terms, and any fees associated with the line of credit.

Make sure you understand your obligations as a borrower and ask questions if anything is unclear. It's also a good idea to compare the terms offered by different lenders to ensure you're getting the best deal possible.

Partner with CRE Professionals

Navigating the process of obtaining a CELOC for your commercial property can be complex.

Partner with commercial real estate professionals who can answer all your questions, from “Can you get a HELOC on a commercial property?” to “How do I apply for a CELOC?”

Working with real estate advisors at CRE Professionals will help you understand your options and advise you on the best route for financial return. Get started today!

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