Types Of Commercial Real Estate Loans

There is a huge variety of commercial real estate loans on the market, so investors have to make the right choice depending on their needs. From loans for new investors to loans for business owners who want to expand their business and to commercial loans for developers, lenders offer virtually any loans to help you grow your business. Each type of loan has unique eligibility requirements, such as the down payment required, the experience required, the minimum credit score, and minimum or maximum amounts. Loans also have very different terms, like interest rates, minimum loan-to-value ratios, and special requirements (some loans are geared at specific investments). For instance, while a particular investor may want a short-term loan to improve the project’s cash flow, another investor might look for a long-term loan to finance a new hotel project.

Let’s take a closer look at what types of commercial real estate loans are available:

Small Business Administration Loans

These loans are also known as SBA 7(a) loans because they fall under the 7(a) program offered by the United States Small Business Administration. The loans are designed to help small businesses expand by offering attractive financial assistance to entrepreneurs. There are various financial products in this program:

  • Standard 7(a) – there’s a maximum loan amount of $5 million and a turnaround time of 5 to 10 business days
  • Small Loan 7(a) – there’s a maximum loan amount of $350,000
  • SBA Express – quick loans (36-hour response time), but a maximum loan amount of $350,000
  • Veterans Advantage – these loans have lower fees for veteran-owned companies
  • International Trade – ideal for fixed assets, like construction and real estate equipment (only for businesses who export to international markets)

Certified Development Company

This is another program offered by the Small Business Administration. The program is known as the 504 Loan Program and is designed for companies that want to grow and create more jobs. The maximum loan amount is $5 million and is ideal for the acquisition or construction of fixed assets:

  • real estate assets, land, and subsequent improvements
  • construction of new buildings, or modernizing, converting, or expanding existing buildings
  • buying machinery for long-term use

Conventional Business Loans

These loans are offered by virtually all lenders, specifically by banks and other lending institutions. They can be used to buy or build commercial real estate, like warehouses, hotels, office buildings, retail centers, and any other type of construction. The federal government does not back conventional business loans, so every lender has different terms and requirements.

Conventional business loans usually finance 65 to 85 percent of the asset’s loan-to-value ratio, so the investor has to cover 15 to 35 percent of the initial investment. Loans last from 5 to 20 years and have low fees but are harder to receive approval for.

Other Types of Commercial Real Estate Loans

  • Commercial bridge loans – fast, temporary loans for investors who want quick cash injections
  • Hard money loans – short-term, high-rate loans with high fees for investors who can’t get approved for conventional loans; very high interest rates (sometimes above 15 percent)
  • Conduit loans – they are secured by a first-position mortgage on an existing commercial property; usually, they have fixed interest rates over 25 to 30 years
  • Insurance loans – a first lien position on the property is used as security for the borrower’s line of credit; usually used for newer properties, which are considered less risky.

Financing a new real estate project is easier than ever. Contact Urban Bay Financial here to get the right type of loan for your next commercial real estate project! We offer the best interest rates on the market!