Commercial Real Estate Loans 101
Are you ready to invest in commercial real estate? Commercial property is an excellent way to enter the real estate market. Whether you’re searching for a business location, multifamily units or a large office rental space, here are some basics you need to know about loans for your real estate.
First, loans for commercial property are slightly different than residential loans. Because you’re looking for an investment property, rather than a primary residence, you may need a more competitive application in order to qualify. Depending on the type of loan, you’ll typically need a high credit score, financial history and a significant down payment.
Another significant difference is the loan term. While nearly every residential loan type provides a fully amortized loan, many commercial loans use a balloon payment. Under a balloon payment, you’ll pay a typical monthly rate for a few years. After that period, the entire amount of the loan will be due. This requires you to work ahead and find a way to save the entire amount of the loan in as little as three to five years.
There are many commercial real estate loan options available to investors. For your first commercial property loan, an SBA 7(a) loan may be the most successful. These loans are administered by the Small Business Administration. SBA 7(a) loans for commercial property are specifically designed for small business owners to purchase or refinance property for their own business to occupy.
A traditional commercial mortgage requires excellent credit scores. However, they can have a longer payment period before the full balloon payment is due, or they may be fully amortized. Depending on your financial situation, this may be the best alternative. It’s particularly effective if you aren’t able to afford a short-term balloon payment.
Finally, commercial bridge loans or hard money loans can be an excellent way to secure the financing you need for short-term renovations. If the commercial property you wish to purchase requires significant renovations before it applies for a mortgage, you can use a bridge loan to restore the building. Then, you can refinance with a traditional commercial mortgage in order to reduce the interest rate.
Discover how you can enter the commercial real estate market successfully with these basic loan options. Whether you’re attempting to secure a location for your own small business or considering investing in rental properties, real estate financing offers you the resources you need to invest wisely.
