If you’re in the market for commercial real estate, you’ve likely come across the term “conventional loan” before. But what exactly is a conventional loan, and how does it differ from other types of commercial loans?

In short, a conventional loan is a mortgage loan that is not guaranteed or insured by a government agency. This means that the lender assumes more risk, and as a result, the qualifications for a conventional loan can be stricter than other types of loans.

One advantage of conventional loans is that they typically offer lower interest rates than government-backed loans. This can result in lower monthly payments and a lower overall cost of financing.

To qualify for a conventional loan, borrowers will need to have good credit, a strong financial history, and a significant down payment. Generally, lenders require a down payment of at least 20% of the property’s purchase price.

Another factor to consider when applying for a conventional loan is the loan-to-value (LTV) ratio. This is the amount of the loan compared to the value of the property. Lenders typically prefer a lower LTV ratio, as it means less risk for them.

When applying for a conventional loan, it’s important to shop around and compare rates from different lenders. In addition to interest rates, you’ll want to consider other factors such as closing costs, loan terms, and any prepayment penalties.

In summary, conventional loans can be a great option for commercial real estate financing, especially for borrowers with strong credit and financial history. However, the qualifications can be stricter, and a significant down payment is typically required. It’s important to do your research and work with a trusted lender to ensure you get the best loan for your needs.