A business mortgage or a commercial real estate loan is a loan for property used for commercial purposes. Purchasing a commercial property to either set up a new facility an office, store, warehouse, etc. or expand an existing one is often a significant commitment for a small business. And that commitment is usually financed by commercial real estate loans. This article will take an intricate look at what commercial real estate loans are, how they work, and what types you can get. Without further ado, let us delve into intricate details.
Commercial Real Estate Loan: What does it actually mean?
If you are a small business owner, you must be aware of the benefits of leasing the commercial space that houses your warehouse or your retail business. However, there are many people who choose to buy commercial space instead of leasing. And they are most likely to seek out a commercial real estate loan unless they have ample money to pay cash for the property.
To mitigate this challenge, home mortgages come into play. They generally require a down payment of at least 20% if the buyer wants to avoid paying private mortgage insurance. Commercial mortgages, however, can come with down payment requirements as high as 35%. A real developer, corporation, or trust can apply for a commercial mortgage in order to secure financing for a commercial property. Most often than not, the entity that takes out the commercial mortgage will then rent the commercial property to tenants and generate a property.
Types of commercial real estate loans
- Permanent loans
This loan is the first mortgage on a newly built commercial property. The funds shelled out via these loans are typically used to help pay back a construction loan. These loans are known to aid with refinancing as well.
- Small business Administration loans
The Small Business Administration, or SBA, guarantees, loans from real estate investment lenders who are SBA approved. The SBA will usually back anywhere up to 85% of the loan’s value. These loans come with a plethora of perks like low-down payments, solid interest rates, and reasonable qualification requirements.
- Bridge loans
It is a short-term loan that is brought to the clients to cover a company's immediate cash flow needs. In this transaction, the owner secures long-term financing, meets an existing financial obligation, or sells the property. These are the reasons for two-year terms almost always accompany bridge loans.
- Hard money loans
Managing finances for a small business owner is challenging. It can be tough for them to secure a real estate mortgage. Hard money allows these individuals to take out a loan backed simply by the property’s value.
Here are a few things you need to know about commercial real estate loans. We hope that this information comes in handy when you think of investing in a loan.