When a business is thriving, it might want to expand or renovate. For such scenarios, you should leverage commercial real estate loans. These vary from conventional small business loans and have similarities to residential mortgage options in terms of functionality.

Just like taking a home mortgage, you can go for a commercial real estate loan (for example a strip center loan in Houston) to invest or purchase a commercial property. Some examples of commercial properties are office buildings, industrial buildings, restaurants, apartment buildings, and shopping centers.

Commercial real estate loans require that the property be occupied by the owner (at least 51 percent of the building). In case that requirement is not met, the borrower needs to look for investment property loan options.

Based on your chosen lender and the property being financed, terms and rates can vary. For the interest rates, they can be fixed or variable amounts. Some commercial real estate loans such as a strip center loan in San Antonio, can be fully amortized, meaning each monthly payment remains the same until the entire loan is paid off. Other loans would require you to pay interest-only payments, wherein at the end of the term, you need to pay a balloon amount. The down payment usually ranges from 10 percent to 30 percent, with repayment terms ranging from 5 to 25 years.

Types to Know

Conventional Commercial Mortgage – These loans are secured by the property which is being purchased. The terms can change depending on the type of lender you partner with. Qualifying for such loans is usually more difficult than other types of commercial loans. Businesses are required to have a good credit score to get approval from banks to secure the loan. While these loans have strict requirements, they come with the lowest interest rates as compared to other alternative lending products.

SBA 7(a) Loan – This is the flagship loan from SBA, and can be used to purchase land or building with the condition that the property will be owner-occupied. With this program, you can borrow up to $5 million using a lender affiliated with the SBA.

SBA 504 Loan – It can be used to acquire owner-occupied real estate properties. You can also use this for making long-term equipment purchases. These loans comprise two different loans. One comes from a CDC (Certified Development Company), and the other comes from a third-party lender. As the borrower, you need to put at least 10 percent of the down payment to secure the loan.

Conduit/CMBS Loans – These are essentially securitized commercial mortgages. Here, the lender would pool together multiple commercial real estate loans and sell them to customers. The requirement is flexible here, meaning business owners who don’t qualify for traditional loan options can qualify for such loans.

Commercial Bridge Loans – These loans are used to bridge the gap until long-term financing is secured. Bridge loans have very short terms, typically in the range of 6 months to 3 years. They must be paid in full upon maturing. Interest rates are usually a few percentage points higher than the current market rate.

Soft and Hard Money Loans – Hard money works similar to a bridge loan, with the distinction that these loans are made by private investors or lenders. Soft money loans work as a hybrid between hard money and traditional mortgage.

About Proactive Lending Group

We offer a wide range of programs and services, from commercial and real estate loans to equipment financing. We are going to assess your commercial property and aid with your financing on a case-by-case basis. We can also assist you with the best lending solutions and rates.