5 Types of Commercial Real Estate Loans
Is your business in need of a commercial mortgage? Here are 5 types of commercial real estate loans you should consider for your business.
Are you looking to create or expand a business? If so, you may need a commercial mortgage.
Just like regularly mortgages, commercial real estate loans can feel tricky to understand and maneuver.
These loans don’t have to be complicated though. Commercial loans are simple enough to understand if you do a little research.
When seeking out a commercial loan, you’ll want to make sure you get the right kind. To help you in your decision, we’ve created this handy guide. Keep reading for more information on five types of commercial real estate loans that you should know about.
1. SBA 504 Loan
SBA loans are loans offered by the Small Business Administration. The 504 loans offered by the SBA apply to real estate or equipment that is owner-occupied.
When you take out a 504 loan you’re actually getting a loan from two parties, not just one.
These parties are a Certified Development Company (CDC) and a bank. Each party pays a different amount.
You’ll have to put down at least 10% to secure the loan. This is your down payment. The CDC covers up to 40% and the banks covers the rest.
This type of loan is for large sums of money, from hundreds of thousands of dollars to several million.
You’ll have different interest rates for each lender. The CDC will provide a fixed rate on your loan is processed and finalized. The interest for your bank loan will probably be a variable rate, though.
SBA 504 loans for real estate allow for a maximum term of 20 years. Visit Mortgage News Channel to find out more about 504 loans.
2. Traditional Commercial Mortgage
If you’d like to fund your real estate operations without the help of the Federal government, a traditional commercial mortgage may be right for you. This type of loan allows for purchasing and renovating many types of real estate properties.
Do you need to purchase a warehouse so you can expand your business’s offerings? Or are you interested in a retail center? You could use a traditional commercial mortgage for both of these.
Keep in mind though, the property in question will likely need to be owner occupied to qualify for a traditional commercial mortgage.
With this type of loan, you’ll need a down payment worth at least 15% – 35% of the purchase price. This is higher than an SBA 504 loan, which has a down payment minimum of 10%.
Don’t be too disappointed if you aren’t approved for a traditional commercial mortgage. In general, this type of loan is harder to qualify for than other types.
3. Bridge Loan
If you’re looking for quick money, a bridge loan is the way to go. Bridge loans provide immediate funding for commercial projects. They’re used for quick projects, or they help cover the gap before long-term financing is approved.
Bridge loans are temporary loans. This is due to their short-term lengths. Much shorter than typical mortgages, bridge loans must be repaid within six months to two years.
You’ll have to secure this type of loan through a private lender, not a bank. You’ll need to prove your income and have great credit scores.
While you’ll have to put more down, traditional mortgage loans are processed more quickly than 504 loans. You’ll be approved in 30-45 days instead of 60-90.
4. SBA 7(a) Loan
Like the SBA 504, the 7(a) loan is a mortgage supported by the Small Business Administration.
They’re more common than the 504 loans, but they’re typically for smaller amounts.
7(a) loans help with purchasing and refinancing commercial properties that are worth $5,000,000 or less.
You’ll need around 10% – 15% of the total purchase price to use as a down payment, and approval will take 60-90 days. In some cases, the down payment is waived.
To get this type of loan you’ll also need credit above 680 and more than three years of business history.
7(a) loans can be used for several commercial operations. This includes land purchases, building purchases, new construction, or renovation.
Borrowers can expect a dependable payment each month and a term of up to 25 years.
5. Hard Money Loan
Like a bridge loan, a commercial hard money loan is a short-term option and may be used in conjunction with a long-term loan. As a business owner, you could take out a hard money loan to purchase or renovate a property. Then you’d refinance with something longer-term.
Hard money loans are good options for business purchases that need to be made quickly. Term length is short, only one to three years, but so is the approval period. You could have funding in your pocket in as little as ten days.
Hard money loans aren’t available to everyone, though. You’ll still need decent credit, with a score of 600 or above. And you’ll need to have a minimum of 15% – 35% to use as down payment.
The interest-only payments that come with hard money loans may be a big draw. You won’t have to worry about the total amount of the loan until the loan term ends.
Commercial Real Estate Loans Aren’t Complicated
There’s a lot of information to go through, but when it’s all boiled down, commercial real estate loans are simple. You just need to do some quick research and comparison.
With so many commercial real estate loans to choose from, there’s one that’s sure to fit your needs. Consider your specific situation and look for options that are a good match. Whether you need short term or long term financing, you’ll be on your way to realizing your real estate dreams.
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