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Types of Commercial Real Estate Loans to Consider Before Buying

investing in commercial real estateIn some ways, buying commercial real estate is like buying residential real estate. In other ways… not so much. For example, both types of purchases will likely require a loan, but because commercial real estate is often a much more sizeable sale, your options for financing are a bit different.

Here’s what you need to know about financing commercial real estate.

What is Commercial Real Estate?

Unlike residential real estate, commercial real estate is an income-producing investment that is used solely for business purposes. This includes retail and shopping centers, office buildings, and hotels.

How is Commercial Real Estate Financed?

Like residential real estate, commercial real estate is typically purchased with financing provided by banks and independent lenders. Additional funding can be found through various organizations, like insurance companies, pension funds, and the Small Business Administration’s 504 Loan Program.

commercial real estate loan optionsHere are some types of available commercial loans.

Traditional Mortgage

Like a residential mortgage, traditional commercial loans require high credit scores and typically a 15% – 35% down payment. These permanent loans usually range from 5 to 20 years in length and enjoy low interest rates and fees.

SBA 7(a) Loan

For business owners who may not be able to qualify for a traditional loan, these government-backed loans issued by the Small Business Administration can provide answers. They offer up to $5 million in financing and typically require 10% – 15% down payments. However, since qualifications are lower than with a traditional loan interest rates are typically higher.

CDC/SBA 504 Loan

Like the SBA 7(a) Loan, the CDC/SBA 504 Loan is issued by the Small Business Administration, but unlike the former, this real estate and commerciala property loan optionsloan has no maximum limit and requires the smallest down payment (10%) of any commercial loan. It is often used by new or growing companies or those looking to refinance.

Commercial Bridge Loan

This short-term loan serves as a “bridge” between the initial purchase and the procurement of a long-term loan. They typically require a 10% – 20% down payment and can last anywhere from 6 to 36 months. It’s typically chosen by investors looking to renovate and sell or renovate and refinance a property.

Commercial Hard Money Loan

Similar to the Bridge Loan, the Hard Money loan is a short-term loan often used by renovators and investors that requires a 10% – 20% down payment. These loans have lower qualification requirements and are fast to procure, making them popular for buyers looking to compete with all-cash buyers.

Thinking of Investing in Commercial Property in Tampa?

Are you reading up on commercial loans because you’re planning onf purchaseing commercial real estate in the Tampa area. If so, then it’s time to contact Linda & Craig. We’re here to help you explore the area, learn more about investing in Tampa, and find the perfect commercial property to meet your needs.

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