The Long and Short About Commercial Real Estate Loans

If you are looking to invest in commercial property, you may not have the finances needed to make a purchase outright. With that being the case, you will need a commercial real estate loan. Here’s a brief look at what you can expect from this form of financing.

The People Who Need a Loan

There are a few individuals who may be in the market for a loan, and the loan process has some slight variances according to the seeker.

  • A developer may need a commercial for a new project.
  • An investor might require a loan to reconfigure an existing property.
  • A mortgage broker may be sourcing a loan for a client.

The Types of Loans

Not all commercial real estate loans are equal, and which one you should apply for depends heavily on your financial status and the intentions for the property. Your likelihood of approval takes into account down payment requirements, credit score, collateral, financial stability, and so on.

Conventional Commercial Loan

Much like a home mortgage works, this loan has shorter terms for commercial property sales. These tend to be more traditional loans with a fixed-rate, usually requiring a borrower to put a minimum of 25% on the property. Lending terms can range from five years up to 10 years. Lenders will ask for an appraisal of the property and financial history for the location.

Commercial Bridge Loan

A bridge loan is a short-term capital infusion that gives an owner the chance to lease, refinance, improve, sell, or resolve a property transaction. This loan is a way for an investor to satisfy a balloon payment on the property before refinancing options are available. It comes with a much higher interest rate than a commercial mortgage, but it provides a six to 12 months span of time before repayment is required.

Hard Money Loan

Some borrowers may not qualify for a traditional commercial real estate loan, making a hard money loan an alternative. These loans provide capital from non-traditional lenders such as private companies or individuals. Sometimes termed a loan of last resort, the lender requires the use of the property as collateral. While they have low underwriting requirements, the benefit is the ability to quickly get the cash needed for a property.

It is wise to compare lending options before settling with a company or individual for your financing needs. The interest rate and repayment terms are just a few of the things to take into account when preparing to make move on a commercial property.

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