Types of Commercial Real Estate Lending

Real Estate
Loan Types
Commercial real estate lending is a complex mix of various types of loans, its important to understand your options before entering the world of commercial real estate!
Published on
August 16, 2023
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Introduction

The commercial real estate industry is one of the most important sectors of the economy. It's also one of the most complicated. Commercial lenders must provide financing for buildings, land, and equipment such as office furniture and equipment. They also need to figure out how much money a borrower will need up front for construction and how best to fund those projects at different stages in their development cycle. In this article, we'll cover the main types of financing available for commercial properties, from bridge loans to long-term fixed-interest mortgages.

SBA Loans

SBA loans are a great way to make sure your business has the funding it needs. While they may not be available in all situations, they are certainly worth looking into if you own or operate a small business.

Businesses that qualify for an SBA loan can get one with lower interest rates, lower down payments, and shorter terms than other types of commercial real estate loans. The SBA program also helps secure the loans by guaranteeing them up to 65%.

Bridge Loans

Bridge loans are short-term, non-recourse loans that are used to bridge the gap between the time a borrower obtains permanent financing, and the permanent financing is closed. The borrower must have a good credit history and sufficient income to qualify for bridge loan rates.

Permanent Loans or Hard Money Loans

A permanent loan (sometimes called a "hard money" loan) is one of the most common forms of commercial real estate financing. A permanent loan is essentially a longer-term bridge loan that can last up to 60 months as opposed to the standard 10-year term of a hard money bridge. Because these loans are typically issued by institutional investors, they're often referred to as private finance or hard money for short.

The biggest benefit of private finance is access to larger amounts than you'd be able to get from other lenders. This means that if your desired property costs more than $5 million or so, it may be difficult to find a traditional lender willing and able to lend at such high values—but no problem with an institutional investor! Because these types of investments typically carry higher interest rates than bank loans and require collateral equal in value or greater than your investment amount (in case something goes wrong), it's important not only find out what kind of rate you'll pay but also how secure your collateral will be protected before committing any funds.

Long-Term Fixed-Interest Commercial Mortgages

A long-term fixed-interest commercial mortgage is a loan that’s repaid over a long period of time. It’s used to purchase a commercial property and usually isn’t secured by the property. Instead, it's secured by the borrower's personal assets such as stocks, bonds and cash.

Conclusion

We hope that we’ve been able to give you a better understanding of these four commercial real estate loans, as well as the differences between them. If you have any questions or comments, please don’t hesitate to reach out—we want to help!

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