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Commercial property loan

commercial property loan

Visit now to learn about TD Commercial Real Estate lending, with deep expertise in loans for owners, professional developers, REITS & investors for all. Maybank Singapore offers commercial & industrial property loans with low rates & financing margin up to 80%. Choose a suitable option & make an appointment. Small business owners thinking of purchasing or renovating commercial real estate or purchasing equipment to grow or expand their businesses should consider the.

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Commercial property loan
Commercial property loan

Commercial Real Estate & Construction Loans


Commercial Real Estate Loans

Get to know Commercial Real Estate Loans

If you’re seeking small business loans specifically for purchasing commercial real estate, whether that’s a multi-family unit you plan on leasing out or commercial office buildings, there are commercial real estate loans to consider. Let’s dive deeper.

Susan Guillory • February 2, 2021

How Do Commercial Real Estate Loans Work?

What are Commercial Real Estate Loans?

Commercial real estate loans are designed to help borrowers purchase new commercial property, renovate income-producing properties, or refinance real estate debt on a property they already own.

How Do Commercial Real Estate Loans Work?

Commercial real estate loans are designed to help borrowers purchase new commercial property, renovate income-producing properties, or refinance real estate debt on a property they already own.

Although commercial real estate loans work similarly to traditional mortgage loans for individuals, there are some key differences that small business owners should understand.

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Loan-to-Value Ratio

The loan-to-value ratio, LTV for short, is a metric that lenders use to determine how much money they can loan. More specifically, they calculate it by dividing the loan amount by the property’s value.

Homebuyers can qualify for a conventional mortgage loan with an LTV as high as 97%, and if you qualify for a first-time homebuyer program or select government-insured loans, you could get up to 100% financing.

With commercial real estate loans, however, lenders typically want an LTV of around 75% to 80%, according to the National Association of Realtors (NAR). This means you either commercial property loan to purchase an undervalued property or have a 20% to 25% percent down payment before you approach a lender if they are using LTV to determine the loan amount.

That said, the NAR also found that just 60% of commercial real estate lenders used LTV as a criterion for determining how much a business can borrow. The remaining 40% used what’s called the debt service coverage ratio, or DSCR for short.

The DSCR is used to measure the ability of a borrower to pay its current debt obligations with its existing cash flow. To calculate it, you divide your annual net operating income by your total debt payments for the year. According to the NAR, the median DSCR is 1.25.

Personal Guarantee vs. Non-Recourse Loans

Whether you get a mortgage or a commercial real estate loan, the lender will use the property as collateral for the debt. But in some cases, it may also require a personal guarantee.

Depending on how long you’ve been in business, your company may not have the financial track record required by the lender to qualify for a commercial real estate loan. In this scenario, the lender may ask the principals or owners to guarantee the loan. This means that if your business can’t repay the debt, you as the borrower agree to be personally liable for making the monthly payments, in the event that the property itself doesn’t fully cover the amount you still owe.

In another scenario, the lender may not require a personal guarantee and simply use the property itself as the only means to recover the loan funds should you be unable to keep up with your mortgage payments. This is sometimes called a non-recourse loan because the lender cannot get additional money from the ameria bank near me principals or owners if the property doesn’t fully cover the amount owed.

Types of Commercial Real Estate Loans

Depending on the needs of your business and its qualifications, there are six primary types of commercial lending that you can use to achieve your goals:

  1. Permanent loans
  2. SBA loans
  3. Bridge loans
  4. Lines of credit
  5. Hard money loans
  6. Owner financing

You can find a variety of lenders for each type of loan, from commercial banks to credit unions to lenders specializing in commercial real estate loans.

Permanent Loans

A permanent loan is the first loan on a commercial property, similar to a traditional mortgage loan.

You can typically get a permanent loan from any commercial lender, but they’re not available for short-term financing needs—they typically have an amortization schedule and a repayment term of five years or more.

SBA Loans

The U.S. Small Business Commercial property loan provides guarantees for some commercial real estate loans, and these loans are often called SBA real estate loans. There are two loan programs under which you can get commercial real estate financing: SBA 7(a) loans and SBA 504 loans. Real estate investors are not eligible for these loans.

  • SBA 7(a) Loans
    The SBA 7(a) loan program is more general in nature, and business owners have a lot of flexibility in how they can use the funds. The loan is even available for non-real estate financing needs, including purchasing inventory and providing working capital.

    Also, SBA 7(a) loans are provided through a single private commercial lender, and up to 85% of the loan amount is guaranteed by the SBA. Down payment requirements start at 10% but can be much higher depending on the lender and the circumstance.

SBA 504 Loans
With the SBA 504 program, small business owners must use the funds to finance the purchase of commercial real estate or machinery and equipment, renovate an existing commercial property, or refinance an eligible commercial real estate or construction loan.

Also, SBA 504 loans are provided through two lenders: a private commercial lender, which provides 50% of the project costs, and a certified development company (CDC), which provides 40%, all of which is guaranteed by the SBA. You provide the remaining 10% as a down payment, though some situations may require more than that amount.

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Bridge Loans

Bridge loans are short-term commercial real estate loans, with repayment terms ranging from six months to three years. Commercial bridge loans are typically used by small business owners who are waiting to apply for long-term financing or to a refinance loan.

However, they can also be used by real estate investors who are looking to fix and flip an investment property for short-term gains.

Lines of Credit

If you’re familiar with personal or business credit cards, you know how a line of credit works. Rather than getting all money you’re borrowing at once, you have access to it, up to a cap. Borrow a little and pay it back, and that full line is available again. This is a good option if you’re renovating a commercial property and need some cash now and more later.

Hard Money Loans

Hard money loans (also known as bridge loans) are a financing solution typically used by real estate investors. These loans are not issued by traditional lenders like banks, but by private companies and individuals. Hard money loans are a form of short-term financing, with the loan term lasting between three and 36 months, because investors don’t intend to hold on to the property for commercial property loan long time.

Owner Financing

Owner financing allows homebuyers—mostly real estate investors, but anyone can use it—to purchase a home and pay the seller directly instead of getting a mortgage loan. This arrangement can provide the buyer with less strict eligibility requirements.

For example, if your personal or business credit scores are relatively low, you’re self-employed, or you’re having a hard time verifying your income, owner financing could be an alternative where traditional mortgage lenders won’t work with you.

For the owner, the primary benefit is getting a steady stream of income (with interest attached) until the property is paid for in full.

What You Need to Know About Commercial Real Estate Loans

While commercial real estate loans are a great financial solution for many business owners, there are drawbacks to be aware of.

Pros of Commercial Real Estate Loans


  • Many options available
  • Variety of terms
  • Flexible repayment terms
  • Tax breaks
  • Equity

Commercial real estate loans offer more diversity and more options than a personal real estate loan or mortgage may afford. This includes repayment terms, interest rates, and payment schedules that can work with your business’ schedule and budget. You’ll also enjoy the tax breaks that come with property ownership, and building equity can add value to your business as you continue making on-time payments.

There are also many property types you can purchase with a commercial real estate loan, including multi-family apartments, retail space, office space, and single-family homes.

Cons of Commercial Real Estate Loans


  • High barrier to entry
  • Long approval time
  • Riskier to lenders
  • High upfront cost
  • Loss of capital

There are, unfortunately, a number of drawbacks when it comes to commercial real estate loans. The first comes right at the start; they are quite difficult to qualify for and take a significant amount of commercial property loan to be approved. You’ll need excellent credit to qualify for the best rates.

Because of economic fluctuations, they are also viewed as being riskier by lenders, which may lead to unfavorable terms depending on the economic climate and your financials. 

Just like buying a home, buying commercial real estate also comes at a high upfront cost and loss of liquidity, and possibly even a future loss of capital if your terms include a concluding balloon payment. 

What Does it Take to Qualify for a Commercial Real Estate Loan?

Every lender has its own criteria for commercial real estate loans, but there are some important questions to consider before you apply. For example, how much is a down payment on commercial property? And what are the business financial requirements? Do you have the credit scores to support a low interest rate?

As for business financials, what you’ll need depends on the lender. For example, SBA 504 loans actually have a cap: your business’ tangible net worth cannot exceed $15 million, and average net income cannot exceed $5 million after taxes for the prior two years.

With commercial lenders, you may be required to meet certain minimums, such as having at least two years in business under the current ownership and $250,000 in federal home loan bank atlanta revenue.

As you shop around and compare lenders, take note of their requirements to determine whether you qualify. Also, consider both traditional commercial lenders like banks and online lenders in your search. While online lenders may charge higher interest rates, they can also have less stringent requirements for credit approval.

How Much Do You Have to Put Down on a Commercial Real Estate Loan?

You can generally expect to put down a minimum of 20% on most commercial real estate loans (the exception being SBA loans, which start at 10%). Depending on the lender, the situation, and your business’ financials, though, you may be required to put down much more.

Also, keep in mind that a higher down payment means a lower monthly payment going and lower interest costs going forward.

Commercial Real Estate Loan Repayment Schedules

With a commercial mortgage loan, there are plenty of repayment plans you can choose from, but the most common is the 30-year, fixed-rate mortgage loan. With commercial real estate loans, however, repayment terms typically range from five to 20 years, and some commercial loan types provide short-term financing where payment is due within a year.

Also, it’s less common with commercial real estate loans for the amortization schedule to match up with the repayment term. For example, you may get the option for five, 10, or 15 years to pay back your debt, but the amortization schedule goes as high as 25 years.

In this situation, the commercial loan is not designed to be paid in full by the time you complete your repayment term, and your business will need to make a balloon payment at the end to satisfy the remaining balance. If you don’t have the cash required to make the balloon payment, you’ll need to have another commercial real estate loan ready to refinance the remaining debt.

Of course, there are some lenders that offer full amortization, but you’ll need to specifically search for that feature when you’re shopping around.

It’s also important to note that commercial real estate loans typically don’t allow you to pay off your loan early without some kind of fee or penalty. Commercial property loan are some potential ones you can come across:

  • Prepayment penalty
    This is typically a percentage of the balance the lender is still owed at the point in the amortization schedule when you pay off the debt early.
  • Interest guarantee
    With this clause, the lender is entitled to a certain amount of interest regardless of when you pay off the debt. For example, a loan may have a guarantee for 10% interest for the first five years, then a 5% prepayment penalty after that.
  • Lockout
    With this clause, the borrower is prohibited from paying off the debt early. A common lockout term is what is capital markets day years.

This process allows small business owners to effectively get out of a real estate loan by providing U.S. Treasury-backed securities as a substitution for the loan’s collateral. To qualify, the securities must generate enough income to cover the remaining principal and interest on the loan. Even so, there may be penalties associated with defeasance.

Interest Rates and Fees for Commercial Real Estate Loans

Commercial real commercial property loan loans typically have higher interest rates than mortgage loans, with an average rate of 5 to 11% (as of this writing). Some lenders may go lower than that range, however, depending on the loan type and structure and the financials of the business. For small businesses that qualify, for example, SBA 504 loans typically provide lower commercial real estate loan rates, with averages below 3%.

You can also expect to pay some chase credit card change pin online costs, including appraisal fees, origination fees, legal and loan application fees, and more. These fees typically amount to 1% to 2% of the commercial loan amount, which is much lower than what you’d expect with a residential loan. If you’re getting an SBA loan, though, you can also expect to pay a guaranty fee, which can be as high as 3.75% of the guaranteed portion of the loan on its own.

Where a commercial real estate loan can get really costly is with prepayment penalties and fees. As contact wells fargo mortgage customer service compare lenders, make sure to read the fine print to determine how much you might be charged if you choose to pay off your debt early.

That said, commercial real estate loans don’t require private mortgage insurance like conventional mortgage loans, so you won’t have to worry about this ongoing cost.

How to Get a Commercial Real Estate Loan

Each type of commercial loan will have a slightly different process for applying and getting approved. Spend time looking at requirements to make sure you have all the necessary paperwork to strengthen your application.

How to Prepare for a Commercial Real Estate Loan

Once you’ve reviewed the requirements for the loan you’re planning to apply for, chinese pokemon cards worth money some time gathering everything you’ll need in advance of applying. The more prepared you are, the easier the application process will go.

If you know your credit scores won’t qualify you for the best rates, you might consider building your credit before applying. You can do this by paying down other debt, making your loan payments on time, and monitoring your credit report regularly.

Also, before applying, get a plan for how you will be able to pay the loan back. If you take on too much debt and aren’t able to make your monthly payments, the real estate you’re buying could be seized by the bank or lender.

Nav’s Verdict: Commercial Real Estate Loans

Commercial real estate loans can provide a great way for small business owners to build or expand their businesses. With so many financial solutions and terms to think about, though, be sure to take your time to find the right loan type and lender for your needs.

Also, consider the right repayment term for your business. A loan with a balloon payment may offer lower monthly payments, but it can cause problems down the road if you can’t make the final payment and can’t refinance the debt.

Finally, when you’re shopping around, take the time to compare each loan based on the full terms, and not just the interest rates and repayment terms. Look at the fine print to find out if there are any penalties for paying off the loan commercial property loan, and check to see if the lender requires a personal guarantee.There’s no one-size-fits-all loan that works for everyone, but taking the time to carefully compare each available option will give you a better chance of finding the right fit for your business. Nav’s Business Loan Builder plan can help you get set up for the best loan possible.

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Custom financing and banking solutions for commercial real estate owners, developers and investors across all commercial properties.

The TD Commercial Real Estate advantage

Depth of industry expertise

Our team of commercial real estate specialists are talented bankers with deep industry knowledge who work at the local level and are passionate about the communities they serve.

A personal, proactive approach

You'll enjoy a comprehensive suite of commercial real estate credit, deposit and treasury management solutions that your dedicated team will customize for your specific needs.

Stability that can help you grow

As a top bank, our size and stable balance sheet allow us to support clients throughout business and growth cycles.

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National scope with community focus

With a focus on multifamily, office, retail and industrial properties – and additional expertise in the Community Reinvestment Act (CRA)/Low Income Housing Tax Credit (LIHTC) and mortgage warehousing financing solutions – TD serves a range of clients including:

  • Local, regional and national developers and owners
  • Real Estate Investment Trusts (REITS)
  • Private equity real estate funds Delegated Underwriting and Servicing (DUS) lenders
  • Community development firms
  • High net-worth individuals and family offices

Comprehensive solutions from seasoned specialists

Work with seasoned bankers who can provide you with a complete financing plan and complementary suite of banking products. Our Relationship Managers are invested in the community and conscious of the impact of each development with the goal of having a positive effect.

You'll enjoy the benefits of working closely with a dedicated Relationship Manager on financing for:

  • Acquisitions
  • Capital expenditures
  • Shareholder distributions
  • Working capital

Customized financing solutions tailored to your needs

TD offers a well-diversified suite of loans and lines of credit to support various ownership strategies, including:

  • Long-term fixed and variable rate loans
  • Corporate facilities (revolving line of credit [RLOC] and term loans)
  • Bridge loans
  • Construction loans
  • Construction loans with mini-perm options
  • Mortgage loans (floating and fixed, up to 10 years)
  • Warehouse lines
  • Bond-supporting letters of credit

Tax credit offerings

We are committed to meeting the needs of low-to-moderate income areas and have received an "Outstanding" CRA rating. Our tax credit offerings include:
  • Low Income Housing Tax Credit (LIHTC)
  • New Markets Tax Credit

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Loans subject to credit approval. Some credit restrictions may apply. Other terms and conditions may apply. Equal Housing Lender

You are advised to consult with your accounting or tax expert before accepting any financial products.

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Commercial Real Estate Loan Guide

  • Most lenders require borrowers to have a credit score above 660 to qualify for a commercial real estate loan.
  • Commercial real estate loans can be term loans, SBA loans, lines of credit or portfolio loans.
  • Commercial real estate loans typically have five- to 10-year terms but are amortized over a term of up to 25 years, which may leave them with a large balloon payment at the end of the term.
  • This article is for business owners who need a commercial real estate loan to purchase a building or remodel an existing property for their business.

A commercial real estate loan is a type of financing that's used to buy property for business purposes. To get a commercial loan, you'll need to have good credit, make a down payment of 25% or more and plan to use a majority of the property being financed for your own business.

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What will you need a commercial real estate loan for?

While most people associate commercial real estate loans with investing in commercial real estate, the uses for these loans are actually more specific than that. Commercial real estate loans are designed to finance the purchase or improvement of property that is being used for your own business. To get a commercial loan, you need to use a majority of the property securing the loan for your own business purposes.

This means that you can still lease out part of the underlying property, but at least 51% of the property needs to be used for your business. If, on the other hand, you plan to lease out 50% or more of a space, then you need a separate type of loan, as this is considered more-speculative activity.

Here are some instances in which a commercial real estate loan may be appropriate:

  • Buying an office building to house your business
  • Expanding or relocating retail space for your store
  • Buying a warehouse to house your inventory
  • Buying, building or renovating a hotel you will operate yourself

Commercial real estate loan rates, terms and fees

Interest rateStarts around 3.5%
Down paymentAt least 25%
Loan termsFive to 10 years, with up to 25-year amortization
Debt-to-income requirementMinimum debt-service coverage ratio (DSCR) of 1.25
Minimum credit score660
Eligible property typesOffice, retail, industrial, hotels, restaurants, medical, entertainment and specialty properties

Key takeaway: Commercial real estate loans are intended for business owners who are buying, constructing or renovating a building to house or expand their own business.

Types of commercial real estate loans

There are several types of loans that can be used to finance commercial property. Each option has its own rates, terms, eligibility requirements and application process. So, before you apply, decide which type of loan is right for you. Here are some options to consider:

Loan typeWho it's good for
Bank term loanBorrowers with established banking relationships
SBA loanBusiness owners who have already tried getting a loan at a traditional bank
Line of creditPeople who already own their property and want to borrow against their equity
Portfolio loanMultilocation businesses

Within the category of SBA loans, there are several loan products that can be used to buy, build or renovate commercial property. However, the SBA 504 Loan Program is specifically designed for this purpose. Funds provided through the 7(a) program can technically be used to buy or improve real estate, but the program isn't ideal for financing real estate.

Also, within the area of portfolio loans, it's important to note that these loans are often used by landlords who own a number of properties that they are leasing to tenants. Lenders consider this to be more-speculative activity, with different rates, terms and eligibility criteria. If you have a business that owns multiple facilities that you use for your own purposes, make this clear before exploring portfolio loan options with a lender.

Key takeaway: There are several loan types that can be used to purchase commercial real estate, such as bank term loans, SBA loans, lines of credit and portfolio loans.

Choosing a commercial real estate lender

When you're trying to get a commercial real estate loan, there are many different loans and lenders to choose from, so it's important to find a lender that not only offers the type of loan you want but also has rates you can afford and qualification requirements you can meet.

Here are some things to consider when picking a lender:

  • Available loan options
  • Origination fees
  • Starting interest rates
  • Documentation requirements
  • Time-in-business requirements
  • Prepayment penalties
  • Personal-guarantee requirements
  • Fast-funding or bad-credit options (if you need them)
  • Better Business Bureau ratings and customer complaints

Key takeaway: There are several factors to consider when selecting a lender. In addition to the type commercial property loan loan you need, you should examine rates, fees, qualification requirements and user ratings.

Commercial real estate loan requirements

Qualifying for a commercial real estate loan is very different from getting a home loan. Because you're going to be using the property for business purposes – and paying back the loan with business revenue – lenders want to make sure that your business can cover the loan payments.

The requirements for securing a loan fall into three main groups:

1. Security

Before approving a loan, your lender will want to know that the loan is properly secured by the property you're borrowing against. This means that commercial property loan generally need to have at least 25% to 30% equity in the property; if you're buying, you'll need a down payment of 25% or more to qualify.

In addition, your lender will want to make sure you have bank of america checking account property insurance to protect against damage to the property (their collateral). The lender will also run title work on the property and check the deed to make sure there are no outstanding liens or other claims against the property. [Read related article: What Is a Lien?]

2. Income

When processing your application, lenders want to see that you have plenty of income relative to your expenses so they can be confident that you can make your loan payments each month. One metric lenders use when making this determination is your debt-service coverage ratio (DSCR). The minimum DSCR varies based on the property you're borrowing against, but most lenders want to see a DSCR of 1.25 or higher. [Read related article: 8 Factors That Keep You From Getting a Small Business Loan]

To establish your income with your lender, you'll need to provide two years of tax returns – usually business as well as personal, because you'll be borrowing the money for business purposes but will also need to sign a personal guarantee. You'll also need to provide your business's organization documents and operating agreement, as well as personal documentation, such as a W-9 and a copy of your birth certificate or passport.

3. Credit

If you're getting a loan for business property, your lender will likely want to check your business credit score. However, in most cases, lenders will also want you to provide a personal guarantee, so they'll want to check your personal credit as well.

Minimum credit scores vary by lender but are typically between 660 and 680 for most conventional loans.

In addition to checking your credit, lenders will want to know how long you have been in business, to assess your credit risk. To qualify for a commercial loan, you usually have to have been in business for at least one or two years. That way, the lender can be confident in your business's revenue, which will be the primary source of repayment for your loan. [Read related article: How to Build Business Credit]

Key takeaway: Commercial real estate loans are more difficult and expensive to obtain than consumer mortgage loans, and lenders require you to sign a personal guarantee.

How are commercial property loans different from consumer loans?

Commercial real estate loans are very different from individual (consumer) loans. These loans have very different requirements for collateralization and underwriting, as well as different rates, terms and other characteristics.

For one thing, there are far fewer programs for securitizing commercial loans, compared with personal loans. This means that lenders typically have to hold many of these loans after they're issued, rather than selling them off to investors, who assume the commercial property loan of loss if the borrower doesn't repay the loan.

As a result, lenders td retail card services customer service far more risk averse when issuing commercial loans. The minimum credit scores are usually higher, as are down payments. Mortgage insurance also isn't an option for commercial loans, so income requirements and interest rates are usually higher.

In addition, commercial loans typically do not last as long as personal loans. Unlike home loans, which are commonly issued for terms of up to 30 years, commercial real estate loans often last only five or 10 years. However, loan amortizations can often be longer – up to 25 years is typical – leaving borrowers with balloon payments that they either have to pay off or refinance at the end of their loan.

Key takeaway: Commercial loans have shorter terms than what they are amortized for, which means that you'll either need to refinance the loan at the end of the term or make a balloon payment.

Commercial real estate loan FAQs

Commercial loans are far more complex than conventional home loans, and there are a lot of details that confuse small business owners. To help, we've tried to clear up some of the biggest sources of confusion for borrowers. Here are the answers to some of the most common questions:

What's the minimum down payment for a commercial real estate loan?

The minimum down payment required for most commercial loans is typically 25% of the property purchase price (not including closing costs). However, down payments may walmart store official site lower – as low as 15% if you use mezzanine financing in addition to a property loan, or 10% if you use an SBA loan.

How long do commercial real estate loans last?

Commercial real estate loans typically do not commercial property loan longer than five or 10 years. However, loan amortizations can often be much longer – up to 25 years. While this means that loan payments are much lower than if they had to be fully paid off in five or 10 years, it also means the borrowers will be left with a balance that's due at the end of their loan term, at which time borrowers will have to refinance that balance or pay it off in a lump sum.

Can you use an SBA 7(a) loan to buy real estate?

Technically, funds issued through the SBA's 7(a) program can be used for real estate (to buy, build, renovate or expand). However, these loans are not designed for that purpose – for example, they aren't collateralized by real estate. As a result, these loans are typically more expensive than other loan options, including SBA 504 loans.

What credit score is needed for an SBA loan?

Typically, qualifying for an SBA loan requires a minimum credit score of 660. For SBA 504 loans, the minimum is usually 680.

Another thing to be aware of with SBA loans is that the Small Business Administration is not intended to be a first-choice lender but rather a lender of last resort. Before applying for a loan from the SBA, you should seek financing from other lenders.

Key takeaway: If you are unable to qualify for a bank term loan, you may be able to apply for an SBA loan. Even though it may have a lower down-payment requirement, the SBA is a last-resort lender.

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