Borrowing capital to purchase a commercial real estate property is different from buying any other property. Commercial real estate (CRE) properties are solely used for business purposes and financing; acquisition, development, and construction, is accomplished through CRE loans. These loans are secured through mortgages secured by liens on the property.
Anyone looking to purchase a new or existing commercial property or looking to renovate a commercial space, a commercial real estate loan will provide the capital you need. Often referred to as business mortgage loans, it’s important to remember that not all CRE loans are one size fits all. Each loan has different terms, different loan amounts, eligibility requirements, application processing time, additional fees, and different loan rates.
Traditional Commercial Real Estate Loans
A traditional CRE loan is given to the lender via the bank. This is the first type of loan individuals think to apply for when looking for financing. A bank will generally lend buyers more substantial sums of money at the lowest cost. But with more significant amounts of money, come stricter loan qualifications. Bank loans are reserved for individuals with high credit scores and businesses that have turned a profit for at least a couple of years.
SBA Commercial Real Estate Loans
Small Business Administration loans are offered in two programs that can be used to finance real estate projects. The 7(a) and the 504 loan program can be used to buy and repair commercial properties. Anyone applying for an SBA loan should be aware of the terms; 25 years for real estate with an interest rate between 7% – 9.5%. The 504 loan helps small businesses purchase and upgrade their capital-heavy assets, but this loan carries lower interest rates that start around 5%.
Commercial Bridge Loans
Commercial bridge loans are short-term commercial loans that let buyers quickly buy a property or capitalize on an investment opportunity. Once the loan is mature, it should be paid in full, or it needs to be financed into long-term financing. A commercial bridge loan can help “bridge the gap” between a property that a buyer wants to buy or renovate, and the buyer finding affordable financing.
Hard Money Loans
Hard money CRE loans offer short-term financing from private lenders and investors. Hard money lenders loan smaller amounts but charge higher interest rates. In exchange, a hard money loan requires less qualification than a traditional bank loan. Hard money loans are ideal for any small business looking to grow and are not qualified for other types of commercial real estate loans.