5 Types of Commercial Real Estate Loans Explanation

Are you planning to buy commercial real estate as an office space or apartment complex? You will probably need a commercial property loan to help you purchase.

There are many options for getting a commercial mortgage, so it may take some research to choose the one that best suits your situation. Here you will find out about the types of commercial real estate loans and what they mean to you as a lender.

What is a commercial real estate loan?
As the name suggests, it is for individuals and companies looking to purchase commercial or revenue generating properties.

While it is real estate, commercial real estate loans are different from consumer housing loans. Here are some of the key differences.

Types of Commercial Real Estate Loans

Not all commercial loans used for real estate are created equal. Here are some of the most common types.

1. SBA loan

The United States Small Business Administration (SBA) offers two commercial real estate financing loan programs. Just as the FHA guarantees FHA loans, the Small Business Agency provides guarantees for business loan programs. This means you will still have to apply and go through the approval process with a commercial lender to get all or most of your money; Small Business Administration will repay what they lend you.

SBA 7 a) Loans

7 (a) The most common SBA loan program is the loan. This loan is great for buying real estate, although you can use the money flexibly. To qualify for this loan, your business must meet certain criteria found on the SBA website. Validation factors include your business income, credit history, and location.

SBA Loans 504

504 Loans provide fixed interest rate financing for fixed assets, including existing buildings or land. Like Loan 7 (a), the SBA has guidelines for eligibility for the 504 loan program. Some of these requirements include small business qualifications, management experience, and an effective business plan.

However, unlike an SBA 7 (a) loan, a 504 loan is not fully funded by a private lender. These loans are provided through Development Accreditation Corporations (CDCs), which are not-for-profit companies that promote economic development in their communities. The private lender typically finances 50% of the project and the safe deposit box finances up to 40%. The CDC will co – ordinate and organize the targeted funding plan.

2. Permanent loans

A permanent loan does not mean you will pay for it forever! It is just a term used to describe the first commercial mortgage.

Basic loans, fixed rate loans, or variable rate loans offered by most commercial lenders are very similar to a consumer loan. Its amortization schedule is usually longer than other business loans and can be tailored to meet your unique needs.

3. Hard cash loans

Cash loans avoid the traditional path of the lender. They are issued by private companies or individuals and usually do not require much evidence that you can repay the loan. Instead, they care much more about the value of the property. If you do not pay the loan, they will get your money back by taking and selling it.

This simplifies the approval process, but the interest rate is usually much higher than the permanent loan rate. In addition, you must repay the funds within a short period of time, usually from one to five years.

4. Interim loans

Financial institutions offer temporary loans, but they also have some similarities to cash loans. This is a short-term option (usually for a year or less) and is also subject to high interest rates. The purpose of the temporary loan is to raise funds and maintain cash flow by enhancing, refinancing or leasing business assets. It can also be used while waiting for long term funding.

5. Framework loans

If you are planning to buy more real estate, a regular loan may make the process a little easier to manage. With this type of financing, you can get one lender, one payment and one set of loan terms for many items.

While this may be a dream, there are some disadvantages. First, it can be difficult to sell individual goods as they are all tied together. Secondly, because all your assets are safe for others, all of your investments may be risk not getting the money you expect.

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