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Financing your commercial real estate property can be a daunting task. However, once you understand what qualifies as commercial real estate and the types of loans for it, the process becomes simpler. A commercial property could be an office space, a retail shop, a warehouse, etc. that is used principally for business activities. Commercial real estate loans are required to buy turn key real estate or renovate a business property. A business owner owning the property can pick a loan that best fits the eligibility criteria and down-payment options. Read ahead to determine which commercial real estate loan suits your property the best.
Loans for Small Business Owners
The SBA 7(a) loans are one of the most sought after commercial real estate loans. They are administered by Small Business Administration (SBA). Any owner-occupied commercial property is eligible to apply for this type of business loan to purchase or refinance the property. Usually, the SBA 7(a) loan covers up to 80% of your mortgage. Therefore, a down payment of 10-15% is expected. This is a long-term loan and requires a good credit score and financial standing for the business owner to acquire it. Another common SBA loan is SBA 504 which is used for building upon and constructing commercial real estate properties.
Short-Term Bridge Loans
A traditional bank or a typical lending institution is eligible to issue the bridge loans. As in evident by the name, these loans are used to bridge the time distance between acquiring a commercial property and securing a long-term loan over it. The bridge loans fill that gap by being short-termed and less restrictive. The conventional repayment period is 6-36 months with the bank giving up to 90% of the commercial property’s market value. Bridge loans have lower interest rates and not as high a credit score requirement. The business owner must be prepared to switch to a longer-termed financing option as bridge loans usually end within a three year period.
A Standard, Conventional Loan
Securing these loans is identical to getting home loans. They are standard in the sense that they have fixed rate mortgages. However, their eligibility criteria are tougher than most other loans because the conventional loans are not backed by the federal government. Therefore, the lending institutions are on their own when they give the loans. They require higher credit scores but their interest rates are lower, hovering between 5-7%. Hence, business owners with good credit scores who are looking to purchase or build a commercial property can secure a conventional loan. The repayment period is up to 20 years.
Manageable Blanket Loans
Blanket loans are convenient for those who own multiple commercial properties. Business owners can combine them all in one refinancing option. The arrangement is flexible since you will not have to manage separate loans for each property individually. Blanket loans are advantageous in that they save time. Yet, acquiring one is complicated. They have high penalty rates and if you default on one property, all the other properties within the blanket will be adversely affected. Blanket loans also have higher interest rates. Additionally, you will require different blanket loans for different states. If you have commercial properties in another state that means financing another blanket loan.
Hard Money Loans
To quicken up the process, you can apply for hard money loans from individuals or companies. They can provide the loan faster than a bank. Since banks need many regulation clearances, the time it takes to finally release the loan can be anywhere between 1-2 months. Individual companies work faster and release the loan as quickly as one week. They work in similar ways as bridge loans but have higher down payment and interest rates. In fact, their interest rates can be as high as 15%. For these individual lenders, your credit score is not as important as the value of the property you own.
As long as you are occupying 51% of the commercial property for your business, you are eligible for many of the above mentioned loans. The loans apply to office spaces, multipurpose buildings, retails shops, etc. Depending on your credit score, down payment money, and the urgency to procure a loan, you can either choose a hard or soft money loan or short or long term loan. Additionally, you can apply for a renovation loan for your property. To stay secure, you can opt for a federally backed loan which may have a tedious underwriting process. A broker can always help you work through the different loan options to pick the one most suitable for your commercial needs.
