A commercial real estate loan is typically used to purchase commercial or investment property. Once in place, the commercial mortgage may finance multi-user buildings, such as retail shops and office buildings. If you are new to commercial property investment or simply looking for a different type of financing, here are five types of commercial real estate loans to consider:
1. SBA 7(a) Loan For Commercial Real Estate
An SBA 7(a) loan is a type of commercial real estate mortgage backed by the U.S. Small Business Administration (SBA). These are the most common types of SBA loans, and are typically used to purchase or refinance 51-percent owner-occupied commercial properties valued at up to $5 million. The minimum down payment for an SBA 7(a) commercial real estate loan is usually 10 percent to 15 percent of the purchase price. Requirements include a credit score above 680 and three years in business.
2. CDC / SBA 504 Loan For Commercial Real Estate
A CDC / SBA 504 loan for commercial real estate is also backed by the SBA but is actually financed by both a Certified Development Company (CDC) and a bank or other lender. This type of loan helps new and existing businesses purchase or refinance an owner-occupied commercial property. The down payment is usually around 10 percent of purchase price. A CDC / SBA 504 loan is considered two loans and there is no maximum loan amount.
3. Traditional Commercial Mortgage
These conventional mortgages are issued by a bank or other lender. They are not backed by the SBA. Traditional commercial real estate loans can be used to purchase owner-occupied properties such as shopping centers, warehouses and office buildings. There is no maximum loan amount, however traditional commercial real estate loans only cover between 65 percent and 85 percent of a property’s loan-to-value ratio. An excellent credit score (above 700) is usually required, and the property must be at least 51 percent owner occupied.
4. Commercial Bridge Loan
A commercial bridge loan is a short-term real estate loan with a period of 6 months to 36 months. This loan is a good option for flippers or commercial property investors who plan to renovate and increase property value before refinancing. Commercial bridge loans are issued by traditional lending institutions such as banks for up to 90 percent of loan value.
5. Commercial Hard Money Loan
Similar to a bridge loan, commercial hard money loans are often used to purchase and renovate commercial properties prior to obtaining long-term financing. This type of loan has the lowest credit score requirement (600+) and is usually approved quickly, within about two weeks. Hard money loans can cover up to 80 percent of property value.
You should carefully consider these options when in the market for commercial real estate. Commercial real estate loans may be used to purchase apartment buildings, office buildings, industrial buildings and more.
To speak with a Utah commercial property broker, contact Chris Falk.