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Home Equity HELOCs

HELOCs for Commercial Property

A home equity line of credit (HELOC) is a terrific way for homeowners to tap into the equity they’ve built in their homes to cover home renovations, debt consolidation, emergency expenses, and even vacations and weddings. But what about business owners who own offices, warehouses, or investment real estate? Are there HELOCs for commercial property?

HELOCs for commercial property—also called commercial equity lines of credit, or CELOCs—are less common, but they are a possibility for businesses and property owners in need of an influx of cash. Below, we’ll walk you through how CELOCs work, their eligibility requirements, and when they make sense.

3 HELOCs for commercial property

Based on our research, our review panel has selected three HELOC companies that stand out for their unique strengths.

LenderRates (APR)Loan amounts
Figure8.80%17.45%$20,000 – $400,000
Hitch8.25%13.00% $25,000 – $500,000
Bethpage FCU12-month intro rate of 6.99% for VantageScores of 720 and up; then a variable rate$10,000 – $1 million

Figure – Best overall

LendEDU rating: 4.9 out of 5

  • Redraw up to 100% of your funds
  • Get funds in as little as 5 days
  • Must borrow 100% of your credit line (minus fees) at closing

As our top overall pick, Figure distinguishes itself with seamless digital processing. It makes application and funds disbursement easy and fast, reducing the need for cumbersome paperwork. 

Its prime focus is on superior customer service, providing guidance and support at every step of the process. Figure also stands out for its competitive fixed interest rates, making it an attractive choice for commercial property owners.

Figure requires borrowers to draw their full credit line at closing, so we think this CELOC is best for those who plan to use the full amount for their commercial property right away.

Bethpage FCU – Best credit union

LendEDU rating: 4.7 out of 5

  • Convert part of your HELOC to a fixed-rate option
  • Borrow $10,000 – $1 million
  • No application, origination, or appraisal fees

Bethpage Federal Credit Union offers variable-rate HELOCs with an option to get a fixed rate for a portion of the credit line. Bethpage HELOCs feature no closing costs or hidden fees.

The credit union offers a low fixed introductory rate on HELOCs of $25,000 or more, but it requires an initial draw of $25,000 for the introductory rate. After 12 months, your HELOC converts to a variable rate. 

You can take advantage of rate discounts by scheduling payments from a Bethpage personal savings or checking account. You must start an application to see what rates you might qualify for. Bethpage doesn’t disclose income requirements or debt-to-income (DTI) requirements online, but its minimum credit score is 670.

Hitch – Best for accessing up to 95% of equity

LendEDU rating: 4.3 out of 5

  • Assigned a dedicated loan officer
  • Access up to 95% of your home’s equity
  • Must borrow 100% of your credit line (minus fees) at closing

Hitch is your best bet if you’re looking to draw a significant amount of your equity, allowing borrowers to access up to 95%. Similar to Figure, Hitch requires a full initial draw, so we recommend it for those planning to put the full line of credit to work on their commercial property right away. No hard credit pull is required to check your rates and get prequalified for a CELOC.

Hitch applicants must have a credit score of 640 or above and reside in California, Colorado, Connecticut, Delaware, Florida, Illinois, Maryland, New Hampshire, New Jersey, New York, North Carolina, Oregon, Pennsylvania, South Carolina, Virginia, Washington, or Washington, D.C.

How does a HELOC for a commercial property work?

HELOCs for commercial property—called CELOCs—are similar to traditional home equity lines of credit. Qualifying businesses and property owners can use their commercial property as collateral to access some of the equity they’ve built in their property as a revolving line of credit.

It’s not a lump-sum loan but a credit line. Property owners can borrow the amount they need from that credit line, which reduces how much they have left to borrow. But once they’ve paid it back, they can borrow the full amount again.

For instance, if you’re approved to borrow $100,000 but only borrow $20,000, you still have $80,000 you can draw from. But if you repay that $20,000, you can once again tap into the full $100,000 you’re approved for.

Amounts and terms vary, but in general:

  • HELOCs for commercial properties have terms between five and 10 years.
  • CELOCs usually allow for a max loan-to-value ratio of 70% to 75%.

Businesses and property owners may need an influx of cash for a number of reasons, such as:

  • To cover payroll and expenses during a slow season
  • To cover unexpected expenses not allocated in the budget
  • To go after new markets and develop new products
  • To renovate a rental property they own
  • To purchase a new rental property

How business and property owners access the funds varies by lender. Some may give borrowers a debit card to swipe when they want to borrow more money. Others may use direct deposit to place funds into a bank account.

Business owners must pay interest on any amount they borrow. Interest rates for commercial equity lines of credit are typically variable, meaning businesses and property owners cannot budget how much interest they might pay down the line. These interest rates are also often higher than traditional business loans.

You might also pay appraisal and late fees, and defaulting on the loan could result in foreclosure. The borrower faces a risk to their business and personal credit scores.

What are the eligibility requirements for a CELOC?

Commercial property HELOCs are available to business owners with real estate and to rental property owners. The types of properties you may be able to get a CELOC for include:

  • Multifamily homes and residential buildings
  • Retail spaces
  • Warehouses
  • Light industrial spaces
  • Offices
  • Mixed-use spaces
  • Unoccupied land

Lenders offering HELOCs for commercial properties may have limitations on the properties you can qualify for, so always confirm with the specific bank, credit union, or online lender before applying.

Specific eligibility requirements will also vary by lender, but in general, expect lenders to have conditions based on:

  • How long you’ve been in business
  • Your annual revenue
  • Your credit score
  • The loan balance on the property mortgage

Lenders may ask for documentation such as tax returns and profit and loss statements.

The largest factor in determining your eligibility (and how much money you’ll qualify for) is the property itself since it serves as collateral for the loan. The more valuable the property, the more money you’ll qualify for.

Lenders may determine the property’s value through an appraisal (so be prepared to pay an appraisal fee) or by comparing assets. Comparing assets means the lender will consider the age of the building, the location, and other relevant details and then compare those to similar properties that have been appraised.

How to get a HELOC for a commercial property

Getting a HELOC for a commercial property can be more challenging than it is for a residential property because fewer lenders offer commercial equity lines of credit. Application processes will vary by lender, but here’s the general process:

  1. Determine whether a HELOC for commercial property is the right move for you: In the next section, we’ll help you understand whether a CELOC makes sense and then offer alternative funding sources. It’s important to consider the risks and costs.
  2. Find the best lender: If you want to proceed with a commercial equity line of credit, research multiple lenders to understand their rates, fees, processes, and eligibility requirements. Then choose the best option for your business’s needs.
  3. Gather the required documentation: Lenders will want a wealth of information on your property and your business, including the outstanding loan balance on the property, tax returns, and profit-and-loss statements.
  4. Apply using the lender’s process: Each lender has its own distinct process, but you can often apply online. You may need to speak with an advisor before the formal loan application review. You’ll input info such as gross revenue, when the business was established, an employer identification number or Social Security number, and basics including your name, address, and phone number.
  5. Form a plan for usage and repayment: If approved, formulate a solid business plan for how you’ll use the funds and repay the balance.

Should you get a commercial property HELOC?

Deciding whether a commercial property HELOC is right for you can be challenging. Weighing the pros and cons of commercial equity lines of credit can help you make a more informed decision before applying. 

Here are some of the advantages and disadvantages to consider:

Pros

  • Only pay interest on what you borrow

    Though you may be approved for a larger line of credit, you’ll only pay interest on what you borrow, which can help keep your interest costs down. While CELOCs may have higher interest rates than other lump-sum business loans, they tend to be more affordable than unsecured funding options, such as business credit cards or unsecured personal loans.

  • Available now and in the future

    Unlike a business loan with a lump-sum payment, a commercial HELOC is a revolving line of credit. This means you can tap into some of your equity now, maybe borrow some more a year later, pay it back, and then continue to borrow throughout the life of the CELOC.

  • Flexible use cases

    A commercial equity line of credit serves several purposes. You can use the funds to pursue new business opportunities, renovate a commercial property, or continue to make payroll even during your business’s traditional slow months. As your business needs change over the credit line term, you’ll have money available to use.

Cons

  • Foreclosure risk

    If you fall behind on payments and can’t catch up, the lender can seize your property and sell it off to recoup its losses.

  • Interest and fees

    You may need to pay an appraisal fee before getting a commercial HELOC, and late fees often apply. Interest rates tend to be higher than those of traditional business loans—and they’re variable, meaning they may go up over time.

  • Temptation

    Having a revolving line of credit can make you feel like you can afford items you shouldn’t purchase. However, to avoid overspending, you’ll need discipline and a clear plan for how you’ll use the money.

Is a CELOC right for you?

A commercial equity line of credit could be the right move if you need to renovate a rental property, have emergency expenses, want to go after a new business, or need to weather an economic downturn.

However, if you’re worried your business may continue to struggle even with the influx of cash—and may not be able to repay the line of credit—taking one out might be too risky. Consider an alternate funding source.

Our expert weighs in

Erin Kinkade

CFP®

CELOCs have the same risks as HELOCs: losing the property you put up for collateral and credit score damage. They also come with greater risks to employees, who could lose their jobs if the CELOC causes increased financial problems and leads the company into bankruptcy or going out of business. To mitigate these risks, do your due diligence and consider hiring a business consultant who is well-versed in the area to offer guidance through the process. I would not suggest proceeding without professional help and due diligence. The risk is too great for yourself, your employees, and the company.

Alternatives to a HELOC for a commercial property

HELOCs are not the only financing option for commercial property owners. A range of alternative products may be worth considering, each with unique benefits and drawbacks compared to a HELOC.

Mezzanine debt

This form of financing is riskier than a HELOC and often involves higher interest rates. However, it can offer a high capital limit and more flexible terms than a traditional HELOC.

Preferred equity

This option might be worthwhile for those looking to avoid monthly interest payments. It involves exchanging cash for a small ownership stake in your property, representing a unique way to raise money.

General partner or limited partner equity loan

This suggests a business partnership structure in which the general partner takes on the liability risk while the limited partner provides the financial backing. The loan has a flexible repayment structure, which may benefit certain borrowers.

Cash-out refinance

This is an alternative to a HELOC, where the borrower refinances their mortgage for more than they owe and takes the difference in cash. However, it may lead to higher interest rates compared to a traditional HELOC.

Cross-collateralized loan

Here, more than one property is used as security for a loan. While it may enable higher borrowing amounts, it also means you risk losing your properties if you can’t make payments.

Recap: Best HELOCs for commercial property

LenderRates (APR)
Figure8.80%17.45%
Hitch8.25%13.00% 
Bethpage FCU12-month intro rate of 6.99% for VantageScores of 720 and up; then a variable rate