Commercial real estate is often a lucrative endeavor. However, the number of commercial loans available for property can feel overwhelming to someone who is just starting out. A quick guide will help you learn the terms and have a better understanding of which type of loan is right for you.
Commercial Bridge Loans
If you need short-term working capital, a commercial bridge loan may be the right choice for you. This loan will usually have a higher interest rate since the terms typically only cover 6-12 months of expenses. The specific interest rate may vary depending on the type of deal you strike with your lender. Commercial bridge loans are an excellent option if you have an upcoming balloon payment on a lease or if you want to purchase a new property while you wait on a current one to sell.
A fixed-rate mortgage is a type of traditional loan and is most common among investors. These loans work much like the ones that homeowners use in that you must pay a minimum down payment (typically about 25 percent) and then pay a monthly mortgage payment for up to 30 years. Before acquiring the financing, the lender will require an appraisal of the property and a copy of the company’s financials.
Hard Money Loans
A nontraditional commercial real estate loan, a hard money loan uses the real estate you already have as collateral. Another source of short-term financing, this type of loan is usually used by people who need to purchase or renovate a property quickly. A good option for people who may not have high credit themselves but do have high-value property, this loan has interest rates from 10-20 percent in most cases and usually takes between 30 and 60 days to be approved.
A traditional loan available through traditional lenders, SBA loans are available as 7(a) or 504 options. The 7(a) loan is the most common and is available for borrowers who want to purchase or refinance property for their own businesses or who need working capital. They have a maximum amount of $5 million. 504 loans, which do not have a maximum amount, typically have 20-year terms and a fixed interest rate. Like 7(a) financing, 504 financing requires the owner to occupy at least 51 percent of the building.
Mezzanine financing can be structured in several ways, including as junior debt, such as a second mortgage, or as preferred equity in a joint-venture project. This type of financing is secured with the property’s equity and tends to be a riskier choice.
Now that you know about the different types of commercial real estate loans, all you need to do is find a reputable lender that can help you obtain the loan that’s best for you.