Types of Commercial Loans for Real Estate and Beyond

You can still make money off a property. However, a bridge loan does not specifically finance the construction of a chasm-spanning roadway extension. But a physical bridge could be converted into a construction loan. What about blanket loans? They aren't as warm as you might think.

The convolutions continue: There are almost as many commercial realty loans as categories of commercial realty. There is plenty of confusion.

commerciallendingusa.com will walk you through the different types of commercial real estate loans available on the market and what qualifies them as suitable property for a bank or lender.

Different types of commercial loans

There are many types of real estate loans. There are many types of loans with different terms and rates. So you can choose the best loan for your property, we'll show you which styles work best.

A commercial mortgage with fixed-interest long-term

A standard commercial actual property loan from the bank or lender works the same way as a home mortgage but has broader uses and shorter terms. Real estate loans are typically less than 20 years in length and fall mainly within the 5- to 10-year range. It would help if you also had a personal FICO score of 700 or higher, at least one year of business experience, and a minimum of 51% occupancy of commercial property by the owner.

Commercial real estate mortgages have variable interest rates ranging from 4% to 7%. Market trends could affect your monthly payment, and the interest rate may increase or decrease. Fixed-rate mortgages have a fixed interest rate and a fixed monthly fee.

A loan with interest-only payments

Interest-only payments loans, also known as balloon loans, are designed for businesses that expect a sizeable monthly payout in the future and not a steady stream of money at the beginning. The smaller interest amount is paid first, and the full balloon payment is due at the end. This term is short (between three to seven years).

Business owners use interest-only loans to build up or construct a commercial property. Later, they will refinance the lump sum.

Refinance loan

Business owners love to benefit from lower interest rates with commercial real estate financing loans, just like a home mortgage. Refinance has additional fees and costs, but these are usually negligible compared to the savings from lower monthly payments and less cumulative credit (via blanket loans; more later).

Refinancing is a way to increase profit flow by improving or expanding commercial properties. You can also use it to pay off any looming costs, such as the final payment of an interest-only loan.

Hard money loan

Hard money loans are not available from other sources of financing. They come only from private investors willing to take on lending risk based on the property's value and not the borrower's credit rating. Hard money loans are considered short-term financing, whereas most commercial loans have a long repayment period. These loans have a short term of 6 to 24 months. This urgency can lead to high-interest rates of 10% to 18% on hard money loans and higher up-front fees.

"Fix and Flip" Property investors love hard money loans, but you won't hear about them on HGTV.

Bridge loan

A commercial actual property bridge loan has lower interest rates (6.5% to 9.9%), longer terms (up to three years), and a shorter approval-to-funding time (15 to 45 days). To be eligible for a bridge loan from a conventional bank, business owners must have a minimum credit score of 650. They also need to be able to pay a 10% to 20% downpayment.

Bridge loans are preferred by short-term investors for renovations and construction before a larger, more comprehensive refinance.

Does this sound like your cup of coffee? We help you to explore your options by providing a list of the Best Commercial Property Loans.

Construction loan

Construction loans can be used to pay for the labor and material costs of building structures such as offices, retail spaces, industrial facilities, multi-family rental units, etc. The undeveloped land can be used as collateral if it has been bought.

Blanket loan

Businesses can combine multiple properties under a commercial realty blanket loan for ease and flexibility. If you have ten properties covered by a blanket loan and decide to sell them all, you won't be penalized. You can then invest the proceeds in other areas.

Although less paperwork and increased investment options are appealing, blanket loans also have downsides. They are complex mortgages with high payments and higher default penalties.

Different types of commercial real property

Any building, structure, or land that can generate income is considered commercial real estate. Most facilities occupied by 51% of the owner's company qualify for loans faster and easier because banks know that the business has more invested in the property. These are just a few types of commercial real property.

Apartment buildings

Commercial real estate comprises apartments, townhomes, condominiums, and townhomes with five or more units. Commercial real estate is not available for residential properties with four or fewer units. They can be bought with a personal loan.

Retail buildings

Retail buildings include standalone shops selling goods, more significant properties such as strip malls (structures holding multiple small businesses and often a large anchor retailer), and regional malls.

Hospitals

There are many medical facilities.

• Hospitals (24-hour medical care with large staff)
• Ambulatory surgery centers that specialize in complex procedures
• Doctor's offices (smaller primary care outlets)
• Urgent care clinics (walk-ins)
• Nursing homes (long-term care accommodations).

Warehouses and industrial premises

Warehouses and industrial facilities are often located far from cities. For product and material transportation: heavy manufacturing, light assembly, trim and bulk storage, and any combination thereof.

Hotels and resorts

This broad category can include luxury resorts, gaming casinos, corporate chains, independent inns, and limited-service motels. There are better options than this for beginners, as resorts and hotels require a lot of paperwork and regulation.

Development of land

Land development is the business of commercial real estate developers. It refers to turning raw land into viable areas for future construction.

Other types of commercial loans

There are many types of commercial loans available. These loans can also be used to finance your business.

Term loans

A term loan is a lump sum borrowed from a bank/lender repaid over a period. It's the most basic type of business loan. Lenders pay borrowers monthly over a predetermined schedule, whether long-term (sometimes for 20 years) or short-term (sometimes for three years). If your credit score is better, traditional bank term loans may be more accessible. Online lenders and marketplaces are more flexible.

Credit for business lines

Business credit is similar to a credit card. You can draw money whenever you need it. You'll still have enough capital to purchase equipment, invest in opportunities, or for other unforeseen expenses, provided your credit limit is still ongoing. For seasonal businesses with fluctuating cash flows, lines of credit can be a good option.

Business loans from the government

Sometimes, the US government can help small businesses. It even has a division called Small Business Administration. SBA loans are available in many forms, with interest rates lower than what banks and lenders would offer (the SBA does not make loans; instead, it works with banks to guarantee payback).

Equipment Financing

An equipment loan may be the right fit if your business requires equipment. Equipment loans are secured by the equipment you purchase. Equipment loans often offer better rates than other types of loans.

Invoice financing

Do you have a business that sends invoices? You may be eligible for invoice financing loans. These loans are obtained by selling unpaid invoices to lenders. They then give you a significant percentage (typically between 70%- 90%) upfront. You get the remainder of the invoice after the customer pays it. There are no fees. Invoice financing can be a great way to improve cash flow and await payment from clients.

Takeaway

There's a loan available for any commercial real-estate venture. There are more options than ever for capital acquisition thanks to the advent of online lenders and marketplaces. A second factor to consider is that commercial real property owned by the owner is its collateral. Therefore, commercial real estate loans have lower interest rates than other business loans. It makes them an attractive option for small-business owners.

Are you ready to apply for a commercial realty loan? To calculate the final cost of a commercial loan, use our calculator!