There are many details and “fine print” to understand how to pay back your commercial loans in Texas. Here we break down what you need to make sure you can repay your lender.
First, it’s important to have realistic expectations about obtaining and repaying a loan. Terms are much different than they are with say a home mortgage, so it’s important not to compare the two — they are totally unique to one another. Residential loans can often have a repayment schedule of up to 30 years, while commercial loans Texas are broken down into tow major categories depending on the length of the repayment terms and schedule.
An intermediate term loan is a shorter-term loan that is three years or less. These loans can be more difficult to repay a large loan amount because the repayment requirements and interest may be quite high. Longer-term loans vary from between five and 20 years. Repayment loans are also amortized loans, meaning the loan will need to be repaid in fixed installments until the entire loan has been repaid. This is similar to what homeowners pay for their home mortgage – making a payment monthly at a “fixed” amount, including principle and interest.
However, amortization of commercial loans Texas are rare, and typically you are required to pay a balloon payment at the end of the terms. This means you will be required to pay the remaining portion of the loan in one large lump sum. This can prove difficult for many small or start up businesses. During the loan repayment, interest is paid, but not principle, so at the end the business owner is responsible for nearly the entire principle amount. The alternative to paying all at once is refinancing the amount of the balloon payment into a new loan
It’s important to know that you are responsible for prepayment terms, too, and can actually be penalized for early payment.
While you may be tempted to “prepay” your loan amount and save on interest, you may be in for a surprise. Unlike a home mortgage, commercial loans Texas often include clauses to the contract that outline a prepayment penalty fee, calculated by multiplying the present outstanding balance by a prepayment penalty amount stated in the contract. This protects the lender or bank from any loss that might be associated with early payoff. An interest guarantee also protects the lender – stating that they are entitled to receive a specific amount of interest when the loan is paid off prior to the terms of the agreement. This is sometimes refereed to as a “lock out,” meaning the business owner has to wait until this time has passed (five year, for example) to them pay off the full loan amount without penalty.
Before signing your loan agreement, make sure you understand what is required of you
Once you sign the documents, you are responsible for the repayment terms stated in the commercial loans Texas agreement, so it’s important that you go through all the paperwork with a fine-tooth comb and seek legal counsel to review it as well. Understanding exactly what is required of you will make it easier to budget and plan for your repayment schedule.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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