The Most Typical Examples Of Commercial Real Estate Loans

You should begin exploring financing options if you are interested in investing in commercial property. There are many types of commercial real estate loans. Knowing what to expect from property investment will help you narrow your search and avoid any potential heartbreak.

Commercial real estate loans have more stringent lending requirements and higher interest rates because businesses can fail. They can vary depending on your financial situation and the company that occupies it.

We answer six of the most frequently asked questions about commercial real-estate loans.

What Are The Various Types Of Commercial Real Estate Loans?

There are three main types of commercial loan financing available: traditional loans (government-backed Small Business Administration loans) and private loans. All of these loans require that the business/businesses occupy at most 51% of the area.

These loans are traditional loans. They come from banks that will examine your credit history and the credit history of the business. Your chances of getting a loan increase the longer the business have existed and the more profitable it's.

SBA loans These are great options for those who have been denied traditional financing. These loans can be either an SBA 7 (a) loan or a DC/SBA 504. Commercial real estate investors can use a 7(a) loan even if they don't have a business. You must be the owner/occupant of the building to qualify for a CDC/SBA 504. Your business must also create jobs in your community. The SBA does not make these loans but approved lenders who follow its guidelines will be approved. The requirements for qualification are stringent.

Private loans Also known as hard money or bridge loans, private loans have higher interest rates and can be used for particular purposes such as purchasing a fixer-upper, obtaining funds, or improving your credit score enough to qualify for a traditional loan or SBA loan.

How Long Does A Commercial Real-Estate Loan Last?

These loans can be for as long as five years up to 25 years. However, banks are more cautious about lending long terms because they can be risky. For short-term loans, it is common to require a balloon payment at the end. Important note: Commercial real estate loans can come with stiff penalties if you make extra principal payments, or pay off the balance too early.

What Are The Interest Rates?

Traditional loans can be expected to cost between 4.75% and 6.75%. SBA 7(a), SBA 10(a) loans range between 7.75% and 10.25%, while CDD/SBA 504s range from 4.64% - 4.94%. Private hard money and bridge loans can have terms of up to 30%.

Interest rates can fluctuate, so be sure to check your search for rate increases by the Fed.

What About The Down Payment?

A traditional bank loan will require you to pay 15% to 35% of the purchase price. CDD/SBA 504s require 10% down and SBA 7(a),s range between 10% and 15%. You'll need to deposit 35% to 50% for a hard money or bridge loan.

Do I Qualify?

For a traditional bank loan, you will need a credit score of 700 or more. A solid credit score is also required for the occupying company. In addition, it must have been operating for at least one year.

SBA loans are available to those with credit scores of 680 and higher. A 7(a) loan is only available to businesses that have been in business for at least three years. Startups may be eligible for a CDD/SBA 504 loan, but they must have a good credit rating and strong financials.

What Is The Average Time It Takes To Get A Loan?

While most people will tell you that you should plan for 30 to 45 days, it is best to expect to be done in 45 to 120 days. It is difficult to calculate the value of businesses because there are many variables.

You can obtain a bridge loan or hard money loan in as short as one week if you are able to accept higher interest rates and feel confident about a quick turnaround or sale (or a transition to a longer-term loan).

Before making an offer, you should take as much detail as possible about the financial and business plans of the occupying company. Although the bank will accept your offer, it will not do the same for you. However, your own analysis will help you make a more informed decision and prepare you for future investments.