Types of Business Real Estate Loans

Elise Williams

2023-09-08 16:30:03 • Filed to: Software for Real Estate • Proven solutions

A commercial real estate loan is employed for purchasing or renovating a commercial property through money borrowed from a source. Commercial loans are intended to finance properties including offices, industries, warehouses, retail outlets, etc. and depending on the purpose of the loan, they rates of repayment and terms and conditions would vary. Commercial loans usually pose a condition where the property to be purchases should formerly be at least 51% occupied

Types of Commercial Real Estate Loans and the People Who Benefit from It

SBA 7(a) Loan

The Small Business Administration (SBA) is also popularly known as the 7(a) loan which is granted for the purchasing of land and buildings, for the construction of a new property, or for the refurbishment of an already owned property. However, the condition of the property being owner-occupied still remains applicable to the loan application. The SBA 7(a) Loan Scheme allows a property owning individual to borrow up to $5 million through a legal SBA lender. SBA 7(a) loans are facilitate those businesses that are denied loans through a bank.

SBA 504 Loan

The Small Business Administration (SBA) offers another loan under the name of ‘SBA 504 Loan’ which is particularly assigned for real estate properties and long-term equipment purchasing. The 504 loans can be segmented into two loans which would emerge from two distinct sources; one portion of the loan that amounts up to 40% will be granted by a Certified Development Company (CDC), while the subsequent portion which will constitute almost 50% or above of the loan, will be granted by a bank. As the borrower, you will be liable to contribute 10% of the loan as a down payment. SBA 504 loans are usually granted to those businesses which are progressive and expanding with respect to trade and number of employees.

Traditional Commercial Mortgage

Similar to a residential property loan, a commercial loan will also be secured on account of the property for which it is being taken. The terms and conditions for a traditional commercial mortgage will fluctuate to a great extent from lender to lender. In some cases you may find a bank offering completely repayable loans at the same rate from the first to the last repayment for up to 25 years, whereas in other cases, you may find a bank which offers interest-only loans for up to 10 years with a loan-to-value ratio that is much lesser than that. In order to get an approval for this type of commercial loan, banks usually demand a reliable personal credit record and a secure business background. Borrowers or business men who possess credit scores beyond 700 should apply for this loan.

Commercial Bridge Loans

As the name states, the purpose of bridge loans is to bridge the gap until long-term payments for the commercial property are eventually secured. Under normal circumstances, bridge loans are tenured for a short period, ranging from six months to two years, whereas many are not amortised which means the repayment rate keeps fluctuating. There are quite some considerable advantages of bridge loans as compared to other commercial loans. Borrowers mostly opt for these loans for refurbishment purposes of a property that is not initially approved for a traditional commercial mortgage. Moreover, down payments for bridge loans are much lower, preferably between 20 to 30% of the loan amount, and what’s even better is that the short tenure allows the commercial real estate loan to finish off sooner than other loans. These loans serve the intentions of those short-term or long-term investors who are either wanting to sell a property or to refurbish one before renting it.

Hard Money Loans

Hard money loans resemble bridge loans in various ways, however, the most prominent difference is such that hard money loans are issued by private firms and therefore require higher down payments. Hard money loans have a shorter repayment tenure, just as bridge loans but with the disadvantage of high interest rates. In most cases, hard money loans supply the money faster than a traditional commercial mortgage, especially making it easier to get an approval to attain the loan. Hard money loans are suit both short and long-term investors who wish to invest in renovation purposes.

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