Commercial equity line of credit

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Page written by Chris Godfrey. Last reviewed on October 19, 2024. Next review due January 1, 2025.

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Many Irish businesses own outright or are in the process of buying their commercial real estate – stores, factories, office blocks, etc. Instead of sitting idle, the equity in your property could be used as collateral to support a commercial equity line of credit. Get the funds your organisation needs when you need them and enjoy lower financing costs than many other types of business loan.

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What is a commercial equity line of credit?

A commercial equity line of credit (CELOC) is a business loan that functions like a high-value credit card – utilising the equity in the commercial real estate you own or are buying to support a business line of credit. The equity in the property acts as collateral for the loan and the amount of equity you have will partly determine how much you can borrow.

How does a commercial equity line of credit work?

A commercial equity line of credit uses the equity in your commercial real estate as collateral for a business loan. Unlike standard business loans, where you receive all the funds as a lump sum, a CELOC allows you to draw from the credit line when you need funds up to your credit limit. The money will usually be transferred to your regular business account and may also be taken out as cash. The key benefit of a commercial equity line of credit is that you only pay interest on the funds you draw down, not the whole line. This can significantly reduce your borrowing costs.

Example of a CELOC:

Distressed sale* value of your commercial estate:	€500,000
Mortgage on the real estate:	€350,000
Net equity in real estate:	€150,000
Commercial line of credit at **80% of equity value:	€120,000

*Distressed sale value – this is the value of your real estate if it was sold quickly by the lender, usually by auction. Distressed sale values are typically lower than regular commercial market values.

**Percentage of equity – this will vary according to your business risk profile, the type of property you are providing as collateral and other factors unique to your organisation.

Top tip: With a CELOC the real estate you have provided as collateral is at risk. If you default on the loan, the lender can seize your property and sell it to recover their funds.

What are the benefits of taking a commercial equity line of credit?

A commercial equity line of credit gives you access to funds as and when your business needs them. Key benefits include:

Maximum flexibility – draw down funds on your schedule, not the bank’s
Only pay interest on the sums you withdraw, not the whole credit line – save costs
Peace of mind – you always know you have funds in the case of an emergency
No need to keep reapplying – many CELOCs have no term limit. The line is available as long as your collateral is in place
Providing collateral can make loan approval easier
Use the funds for almost any business purpose

How do I qualify for a commercial equity line of credit?

Every lender will have their own criteria for providing a commercial line of credit, but typically, you will need at least one year in business, good levels of annual revenue and a personal credit score of +600. However, depending on the value of the equity in your commercial real estate it may be possible to obtain a CELOC with less time in business, lower revenues and even a poor to bad credit score.

Get started with Swoop

No matter if you’re seeking your first commercial equity line of credit or you’re a seasoned borrower, working with business finance experts can make all the difference when applying for your funding. Contact Swoop to discuss your borrowing needs, get help with your application and to compare high-quality commercial equity credit lines from a choice of lenders. Make more use of your commercial real estate – get the funds you need to make your business grow. Register with Swoop today.

Written by

Chris Godfrey

Chris is a freelance copywriter and content creator. He has been active in the marketing, advertising, and publishing industries for more than twenty-five years. Writing for Barclays Bank, Metro Bank, Wells Fargo, ABN Amro, Quidco, Legal and General, Inshur Zego, AIG, Met Life, State Farm, Direct Line, insurers and pension funds, his words have appeared online and in print to inform, entertain and explain the complex world of consumer and business finance and insurance.

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