Guide For Financing Commercial Real Estate Loans

Looking to expand your business with a loan?

You’re not alone. Around 59% of entrepreneurs get a loan for this purpose.

Businesses, small ones especially, have a heavy reliance on loans for their continued success and growth. However, you need to choose the right type of commercial loan if you want to be successful.

If you need to buy, develop, or expand a property, you need commercial real estate loans. Find out the different types and how to get financing for commercial property below.

1. Select the Right Type of Loan You Need

Did you know that there are several types of commercial real estate loans 100 financing? Here are some of the most popular types offered nowadays.

Traditional Commercial Mortgage Loan

You can get a traditional commercial loan from traditional lenders, like banks. This type of loan is for buying commercial properties like buildings, apartment complexes, warehouses, shopping centers, etc. 

It isn’t ideal for short-term needs. The terms usually start at five years up to 20 years. 

SBA Loan

The U.S. Small Business Administration backs two types of real estate loans: 7(a) and 504. Both aren’t applicable for real estate investors. 

The SBA 7(a) is for businesses that want to buy or refinance owner-occupied commercial real estate. It has a maximum limit of $5,000,000. The SBA 504 is best for those that need over $5,000,000.

Bridge Loan

You can loan up to 90% of the purchase price with a bridge loan. It’s a type of short-term financing with terms ranging from 6 months to 36 months.

A bridge loan helps businesses get immediate financing—something they can use while looking for a more permanent solution. It’s where it gets the name “bridge.”

Hard Money Loan

A hard money loan looks at the property value only. It doesn’t consider the borrower’s financial history, creditworthiness, and others. 

Commercial hard money loans have shorter terms. They’re a great option for real estate investments and renovation financing. You can get these types of loans from private companies and individuals.

2. Choose a Lender

When choosing commercial real estate loans, consider the lender. Although the typical choice is a bank, there are other types of lenders as well.

Banks are often the first choice because they have different loan products for different types of properties. They often have good rates and allows you to choose long-term financing options.

However, they are strict about credit history. They’re slow to process and disburse loan amounts.

Another option is a non-bank finance institution. Many prefer this option because you can get your loan faster. A downside to companies offering this service is the higher rates.

Some other types are conduit lenders, hard-money lenders, P2P marketplaces, and so on. Make sure to review your options first.

3. Prepare the Requirements

It doesn’t hurt to prepare the requirements before applying for a loan. Some of the usual documents are:

  • Most recent tax returns
  • At least three months of bank statements
  • Business plan
  • Books and financial records
  • Asset and liability statements
  • Credit history
  • Details about collateral
  • Organization documents and operating agreement
  • Personal documentation (W-9, birth certificate)

Some requirements need both personal and business documents. For example, you likely have to provide both your personal and business tax returns.

4. Review the Application Process

The application process is different for every type of loan and every lender. However, the structure is pretty much the same.

Lenders also look at your pre-qualifying potential. They look at your current financial state and your financial history. They review your income, debts, and credit report.

If you qualify at this step, you can then move on to the actual application process. It’s when you have to fill out a form. You also have to provide documents proving you can pay for the loan.

The process also includes a property appraisal and an evaluation of your income and collateral. If you pass this stage, wait for the underwriting. It’s at this part wherein your loan either gets approved or denied.

After that, expect to wait for several months for the lender to process the loan. It depends on the lender and the type of loan you’re taking out. Ask the lender how to get financing for commercial real estate to get a more accurate idea.

5. Compare Interest Rates of Commercial Real Estate Loans

An important question you must answer is this: what is the interest rate for commercial real estate loans? While the interest rate varies per establishment and term, it usually starts at 3.5%. SBA 504 loans, though, usually have even lower rates.

The actual interest rate differs from one lender to the other. Even under the same lender, it varies depending on the program you’re signing up for, how long the repayment terms are, the loan amount, and so on. The interest might also be variable or fixed.

Lenders review many factors to determine the interest rate, although it all boils down to how much risk they’re taking by lending to you. The higher the risk, the higher the interest. Sometimes, it can go up as much as 17.5%.

Aside from the interest rates, you also have to consider the fees and the downpayment. These include the appraisal fees, loan application fees, origination fees, closing costs, and more. You should expect to pay around 1% to 2% of your loan amount for the fees.

Make sure you have all these down when comparing lenders and loans. Find out which one works best for your situation by taking notes. 

Choose the Right Commercial Mortgage Loan for You

With this guide, you should be able to find what best suits your credit history and needs. Don’t hesitate to reach out to lenders to ask about their commercial real estate loans, though. It’s the most definitive way of determining whether they’re the right provider for you.

Find the best loan solution for you. Contact us today and let us know how we can help.

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