Understanding how Retail commercial loans are provided

There are various kinds of commercial properties which an investor can invest in like grocery, big box, unanchored, shadow anchored, anchored, multi-tenant and single tenant, and regional or local mall properties. But purchasing these kinds of retail buildings can sometimes be costly. Therefore, you need a commercial lender to give you a retail loan finance such investments.

What is a retail loan?

A Retail loan can be equated to a mortgage loan that is secured to purchase a real estate property. However, there is a difference between the two, since a mortgage loan is used to purchase a residence while a retail loan is sourced to secure or commercial retail property. Private investors and banks can also give finance for a retail location like a strip mall or a stand-alone retail store. Lenders usually use a number of factors during the approval process to ascertain commercial loan will attract.

How much is allowable?

To make it easy for standard retail properties to be easily refurbished for different business purposes, commercial loan providers usually give favorable interest rates and terms as follows

  • A standard commercial property: the security includes a residential property or a guarantor to borrow up to 100% of the property value. Although you can borrow up to 80% without that kind of security.
  • Purpose-built commercial property: you are permitted to borrow up to 60% of the building's value.
  • Retail business loan: You can borrow just up to 50% of the value of the business.

What are conditions to meet to qualify for retail loan?

Basic conditions

Lenders usually consider a lot of things in the application evaluation process to see if the property is fit for the retail loan. For instance, a lender will take the business's sales history and current tenants of the existing property. Through these lenders will gauge the net worth of the property and determine whether you have enough income resources to make payments for the loan.

Other considerations

Some other considerations that lenders may want to look at before approving any retail loan include:

  • The locality of the new or existing retail store
  • The existing property’s appearance
  • Existing property’s age
  • Extensive maintenance and repairs required in older buildings.
  • Accessibility and visibility of major transport networks, like roadways, in the location.

Credit score

If an investor wants to qualify for this kind of loan and gets favorable commercial interest rates, the individual should make sure that the credit score is in order. The lower the score the credit score, the higher the interest rate charged. High-interest rates really mean that the borrower will have to pay high amounts for the loan. On the other hand, individuals can be denied financing due to a low credit score that emanates from high personal debts late payments. An average of the credit score of 680 or higher is usually acceptable to most commercial retail lenders.

What is a Purpose-built Property?

The retail commercial loans that Banks approve are usually variety stores, convenience stores, clothing stores and beauty salons.

Banks consider such commercial properties as standard since a potential buyer can run a different kind of business on it. But when it comes to a purpose-built property, it is built to serve a specific purpose like butchers. Butcher shops have cool rooms and floors that invert drains. Other purpose-built properties are chicken shops which have grease traps and subfloor drainages.

Since a purpose-built property has a small market appeal, the bank fears that it might not sell the property when the borrower defaults the retail commercial loan. Because of such an appeal to certain kinds of buyers, banks become conservative when lending to owners of such properties.

 How will banks or loan providers value the property?

The shop size

The number of tenants you require will determine the space you really need. Typically, shops can range anywhere between 20 to 50 square meters or even more.

When it comes to small or large retail premises within banks, space usually varies according to the business niches types.

However, there is a higher value attached to commercial properties in prime locations. This means the wider the floor space, the more expensive the commercial property.


In most instances, retail properties are typically located in commercial 1 zone which also implies that they are zoned for mixed use. Such an analogy is sensible from a business perspective because, for instance, you will have to run daily errands and live where people live if you want to run or buy a convenience store.

Under rare circumstances, there are a couple of retail stores that can be zoned in commercial 2 zones. These are the areas that are typically dedicated to manufacturing, offices and other kinds of factory businesses.

Since there is less tenant mix to promote consumer activity, especially on weekends, banks are usually conservative when handling retail businesses. For instance, food vendors may thrive in search location but hobby stores or clothing stores may struggle.


Banks will prefer retail stores that are located in places near central business districts. Such places are highly preferred since they have a good amount of tenant mix and foot traffic.

It also means that the property has a wider market appeal in case it is sold and a longer tenancy period.

The Tenant

When banks look at the tenant to see whether you have the ability to borrow, they at first look weather are good leases in place and the proposed rental income. Some banks may require that lease should have about 2 to 3 years remaining. While other banks may require a business lease to be renewed with 2, 3 or several other approval condition option.

In the bottom line, banks are looking for properties that have long-time tenants who are able to pay rent on time.

In conclusion

If you are an owner or intend to own any kind of retail property, you ought to be aware that many loan providers, banks, and financiers are around to provide retail loans. We have given you information about what a retail loan is and how you can qualify for it.