Investing in commercial real estate is one of the best ways to grow your money. It provides high appreciation, certain tax benefits, and a regular income stream. One way to purchase commercial real estate is by taking out a commercial real estate loan. Commercial real estate loans are very different for residential loans. Commercial loans are often geared to the purchase or renovation of office buildings, retail centers, mixed-use areas, and other commercial properties.
Since this type of loan is riskier than a home mortgage, lenders require a higher down payment on commercial property and shorter payment terms. But if you know your top financing options for commercial real estate, then you can go in feeling prepared and knowledgeable. Choosing the right commercial real estate loan depends on your business and its qualifications. Here are the options we recommend:
Traditional Commercial Loans
Unlike most commercial real estate loans, traditional commercial loans are not financed by the federal government. These loans, which are made between the lender and the borrower, typically have an amortization schedule and a longer repayment term. Traditional commercial loans are offered by banks, credit unions, mortgage companies, and other private lenders. Borrowers are also required to have a high credit score.
These are best for businesses that are already established and moving forward.
Loans From The Small Business Administration
The Small Business Administration (SBA) is a government agency that helps small businesses secure loans. While these loans can be used for commercial real estate, real estate investors are not qualified to apply.
There are two types of SBA loans: the SBA 7A Loan and the SBA 504 Loan. Here are their key differences:
- SBA 7A Loan
Offered by private commercial lenders, the SBA 7A Loan provides flexible terms. While SBA 7A Loans are typically offered to established businesses that are purchasing real estate, newer businesses may apply for this loan as well. The SBA 7A Loan is best for those buying real estate or those who need to improve a leased property. - SBA 504 Loan
If you’re looking to purchase, build, or renovate commercial real estate, the SBA 504 Loan is your best bet. This loan provides businesses with financing that’s long term and at a fixed rate. Loan terms usually go for 10, 20, or 25 years. Outside collateral is not a requirement. SBA 504 Loans are given by a private commercial lender and a certified development company (CDC).
Hard Money Loans
Also known as a “bridge loan,” a hard money loan provides short-term financing for around 3 to 36 months. Interest rates are higher as well. Unlike traditional lenders, hard money loans are offered by private companies and individuals.
These are best for those who want fast approval because hard money loans can be funded within 3 to 5 days.
Get Into Your Commercial Property With Destination Properties
Need help in finding the right commercial real estate loan? We at Destination Properties would be more than happy to assist you find the top financing options for commercial real estate. Our years of experience with commercial and investment properties have made us the top commercial real estate experts in Ogden, Utah to call. Get in touch with us today at 801.745.2009 or send an email to info(at)destinationpropertiesutah(dotted)com.