As they grow, small businesses need to consider expanding into additional commercial real estate spaces. To purchase this property for their company, small business owners need to secure commercial real estate mortgage loans. Purchasing real estate is a smart way to grow your small business. Luckily, there are many loans available for you to apply for. However, with so many options, you may have trouble selecting the right loan for you. Keep reading to learn about the different types of commercial real estate mortgage loans for small business.
Traditional Bank Loans
Business owners looking to secure commercial real estate mortgage loans can turn to banks to secure needed funds. This is the kind of loan most business owners consider first to fund their ventures. Banks typically lend more money at lower costs compared to private financial institutions. As a result, the loans are more competitive and harder to qualify for. If you have excellent credit and a solid business plan, getting approval for a commercial real estate loan through a bank is easy. While poor credit does not disqualify you from bank loans, the terms you have to agree to may not be appealing. In addition, compare banks before accepting a loan. Small business owners who need commercial real estate mortgage loans usually apply to banks to take advantage of higher capital with lower rates.
Commercial Bridge Loans
For business owners looking for a shorter term agreement, consider taking out a commercial bridge loan. Because banks take a lot of time to approve traditional commercial real estate mortgage loans, you may end up missing an opportunity. Commercial bridge loans allow you to quickly acquire the needed funds to purchase property. They literally bridge the gap between identifying an opportunity and securing the funds to take advantage of it. When this loans matures, most borrowers choose to refinance. This allows you to secure the property you need even though you cannot find affordable long-term loans. Utilize bridging loans to provide quick access to short term loans. Bridge loans are great for small business owners who are afraid of missing an opportunity due to a lack of funds.
Hard Money Loans
Similar to bridge loans, hard money commercial real estate mortgage loans are short-term. The difference, however, is that hard money loans almost exclusively come from private lenders or investors. These loans are typically for smaller amounts. However, the rates are much higher. In exchange for less capital and higher interest, lenders issue the loans faster. Nowadays, many small businesses get their first commercial real estate loans in the form of hard money. This is because private lenders take more risks on ventures than banks do. Small business owners having trouble securing commercial real estate mortgage loans from banks should consider turning to hard money lenders.
SBA Commercial Loans
Furthermore, business owners having trouble securing commercial real estate mortgage loans can turn to the SBA for assistance. There are two different real estate loans offered by the SBA. The first, the 7(a), is an all-purpose program designed for any business need including real estate purchases. This loan has a 25 year term with rates ranging from 7%-9.5%. Alternatively, the 504 loan is specifically granted for high cost asset purchases. The 504 loan typically carries a term of 20-25 years and interest rates as low as 5%. Due to the great terms offered by these loans, they are highly competitive to acquire. If you feel your business model stands out, turn to the SBA for a commercial real estate mortgage loan.
Real Estate Crowdfunding
Crowdfunding platforms provide business owners with an entirely new way to secure commercial real estate mortgage loans. Crowdfunding platforms combine many small loans to act as a single large one. These platforms traditionally generate a lot of earned revenue through angel investors. This trend has been rising in popularity over the past few years. This is because crowdfunding is similar to shorter-term loan options. However, the risks are not as high due to the volume of lenders you have access to. Like short-term loans, you have to repay your lenders. The difference is that you are not repaying the entire loan all immediately. You pay back smaller amounts to each individual lender as their respective loan matures. To secure commercial real estate mortgage loans for your small business, think about crowdfunding platforms.
Small business owners looking to buy property for their company need to know which commercial real estate mortgage loans are right for them. Traditional bank loans are always the first place to look since they offer the most capital at the best rates. Borrowers who do not want to miss an opportunity due to the bank’s slowness should consider commercial bridge or hard money loans to secure funds quickly. Also, the SBA is an excellent resource for small business owners to secure loans they need. Finally, consider capitalizing on the trend of crowdfunding as a means to secure funds for your commercial real estate purchase. Use this guide on commercial real estate mortgage loans to secure capital for your small business.