Just like buying a home through a mortgage, you can also purchase commercial property through one. Commercial real estate loans enable businesses to have the funding required for such a project to roll.
Popular Types of Commercial Real Estate Loans
Banks and lenders approve commercial real estate loans for a whole array of property types, including storefronts, industrial facilities, multi-family units and more. Just like a residential mortgage, the commercial loan will be secured by the property to be acquired. Note that traditional mortgages are generally harder to secure than any other type of commercial mortgage.
SBA 7(a) Loan
The 7(a) loan is the flagship loan of the Small Business Administration, and it meant for loans to be used in buying land or buildings, renovating currently existing property or building a new property, all with the condition that the owner will occupy the real estate. Under the program, one can borrow as much as $5 million through an SBA-recognized lender. Because the loans are fully amortized, monthly payments will be fixed until the last investment is paid.
SBA 504 Loan
In an SBA 504 loan, which combines two different loans, a borrower can get 40% max of the loan amount from a Certified Development Company, and at least 50% from a bank. A borrower will have to pay at least 10% down. The CDC part of the loan can reach $5 to $5.
Conduit loans are securitized commercial mortgages combined together and sold to investors on a secondary market. The most important differences between conduit and traditional loans are related to prepayment and loan administration issues, as well as to how flexible the borrower is when it comes to loan terms. The least possible amount that conduit lenders usually finance is within the range of $1 million to $3 million, with terms of 5 to 10 years and an authorization period of 20 to 30 years.
Bridge loans literally “bridge the gap” up to the time when long-term financing for a commercial property is at hand. Sometimes, the lender that provides the long-term loan will provide the bridge loan too. These loans are not amortized and have very limited terms – generally six months to two years.
Soft Money vs. Hard Money Loans
Hard money loans and bridge loans are so alike, but a crucial difference they have is that hard money loans are generally issued by private companies and require a lot more as down payment. Soft money loans are a blend of hard money loans and traditional mortgages. But in contrast to hard money lenders, soft money lenders place more emphasis on the loan applicant’s creditworthiness and how the application’s convincing power.