Types of Commercial Real Estate Loans

It is estimated that almost half of small businesses or 15 million, are home-based businesses. Although starting a business from home is common and more affordable, it is not ideal for everyone.

If you are starting your own company and need real estate to get the business up and running, this guide is for you. Read on to learn about the different commercial real estate loans to help with funding.

SBA Loans

One of the more common commercial real estate loans is an SBA loan, otherwise known as a United States Small Business Administration loan.

The process of getting this type of loan is similar to an FHA loan. You will apply, go through the approval process, and get most or all of the funds you need.

The types of commercial real estate loans through the SBA program go into more detail than most people know about. In fact, they have two loan programs for real estate financing.

The 7(a) loan is the most used program because it is flexible with how you can use the money. However, you have the meet certain business requirements to be eligible for this program.

The 504 loan program is the second SBA program that offers fixed rates. It differs from the first program as it is not funded fully through a private lender.

Permanent Loans

Permanent loans offer a first mortgage on a commercial property. These commercial real estate loan rates might be fixed or variable depending on the lender.

The appealing thing about a permanent loan is that it can be tailored to fit the needs of the borrower. They also work similarly to a consumer mortgage.

Hard Money Loans

The best commercial real estate loans for borrowers that want to avoid the traditional lenders are hard money loans. Private companies issue these to individuals based on the value of the property.

Instead of providing them proof that you can repay the loan, you’ll be placing your property up as collateral. If you default on this loan, the lender will take the property from you and sell it to make their money back.

Although it is easy to get approved for a hard money loan, the interest rates are high.

Bridge Loans

Bridge loans are given out by financial institutions but have certain aspects in common with a hard money loan. They are both short-term options with high-interest rates.

Borrowers that want to sustain cash flow during the leasing, improving, or refinancing process can benefit the most from a bridge loan.

Blanket Loan

Blanket loan financing allows a borrower to seek out one lender, make one payment, and have one set of loan terms for every property they own.

Selling the properties can be difficult if you have not repaid the blanket loan. Since each property is connected, you’ll run into trouble if one property can’t pay the loan.

If you need to file for bankruptcy to cover loan costs and more, you can seek help through DIP financing.

Are Commercial Real Estate Loans the Best Option?

If you plan to purchase real estate for your place of business, gaining funds through a loan is beneficial. Because there are many types of commercial real estate loans, knowing about each of them can help you make a decision.

Before signing a loan agreement, consider this guide. If you don’t think these loans are right for your situation, seek out additional funding.

For more articles that cover finances, check out the other posts on our blog.