Understanding the Types of Commercial Real Estate Loans

Are you looking for your first real estate investment l? If so, it’s important to understand how these commercial loans work. In most cases, these kinds of loans are used to purchase and/or renovate properties that are owner-occupied. Generally, these loans are for properties such as office buildings, retail centers, and mixed-use buildings. Keep reading to learn more about the 5 main types of commercial loans and how you can qualify.

SBA 7(a) Loan

This type of commercial loan is for the investor who wants to buy a commercial property for the long-haul. It’s an owner-occupied loan for commercial properties up to $5,000,000. Real estate lenders nationwide want applicants to meet the following qualifications:

• In business for at least 2 years

• Have a credit score of 680 or higher

• 51% owner-occupied

The loan period for this type of loan is up to 25 years and funding is available between 60-90 days.

CDC / SBA 504 Loan

If you’re looking for a commercial loan with no maximum limit, this is a loan product for you. That is, as long as you meet the credit requirements of a 680 credit score and have at least 10% for a down payment. The loan terms for this loan are shorter with the average term falling between 10 – 20 years.

Traditional Mortgage

For people more comfortable with traditional loan terms, the traditional commercial mortgage is an attractive loan product. However, as with most traditional loans, credit requirements are strict. You must have excellent credit, with a score no less than 700. You also must have at least a 15% down payment. One of the benefits of a traditional mortgage is there’s no maximum limit, which is attractive for those investors looking for a good real estate investor loan.

Commercial Bridge Loan

Not every investor is looking for lengthy loan terms. If you fall into this category, a commercial bridge loan is an excellent option. These are short term loans of 6 – 36 months. They also have the following requirements:

• 700 or better credit score

• A net worth equal to the loan amount

• Have experience with 1-3 commercial investment projects

• 10% down payment

This loan product is great for investors who want to get into a project quickly since funding occurs within 15 – 45 days.

Commercial Hard Money Loan

This is another short-term loan option that has lower credit score requirements and is a great way for people with bad credit to get real estate investment loans. Many people use hard money loans for renovation projects and when they need quick funding. The average funding period for hard money commercial loans is 10 -15 days. When applying for this type of loan, you’ll need a proof of down payment, experience with 1-3 commercial renovation projects, and a 10%-20% down payment.

Commercial loan products are not the same as traditional residential mortgage loans. For this reason, it’s important that investors understand the loan product completely before signing any papers and receiving any money. To find a commercial real estate loan for your next project, work with the best lenders. Contact Investor Loan Source today to learn more about the loan options available to you.