What is a commercial real estate loan?
Commercial real estate loans are loans that are usually used to purchase and/or renovate a property that is NOT an owner-occupied commercial property. A property is considered an owner-occupied commercial property if the tenant takes up at least 51% of the space.
What are the different types of commercial real estate loans?
There are five main types of commercial real estate loans. Each type of loan has specific terms and conditions. It is important to know what type of commercial property you are trying to buy so that you can pick the best loan for you.
- SBA 7(a) Loan For Commercial Real Estate: A Small Business Administration (SBA) 7(a) loan is one of the most popular types of SBA loans. The 7(a) loan is a mortgage backed by the US Small Business Administration. This loan allows businesses to purchase or refinance up to $5,000,000 of owner-occupied commercial properties. Most SBA 7(a) loans serve as working capital, though they can also be used to acquire commercial real estate. The interest rate is usually between 5% – 8.75%.
- CDC 504 Loan For Commercial Real Estate: The U.S. Small Business Association also backs a Certified Development Company (CDC) 504 loan. With this type of loan, new and existing businesses can acquire or refinance an owner-occupied commercial property. A CDC 504 loan doesn’t have a maximum loan amount, and the interest rate is usually between 3.5% – 5%.
- Traditional Commercial Mortgage: The traditional commercial mortgage is typically used to purchase or refinance a retail center, an industrial warehouse, an owner-occupied office building, a shopping center, etc. Although this type of loan is issued by a lending institution or bank, it is not backed by the federal government. The interest rate is usually between 4.75% – 6.75%.
- Commercial Bridge Loan: The Commercial Bridge Loan is a short-term loan used to purchase an owner-occupied commercial property before obtaining a long-term mortgage later on. Most importantly, with commercial bridge loans, borrowers can compete with all-cash buyers. Traditional lending institutions and banks issue these loans. The interest rate is usually between 6.5% – 9%.
- Commercial Hard Money Loan: A commercial hard money loan is a short-term loan that is usually used to acquire (and occasionally refurbish) an owner-occupied commercial property before obtaining a long-term mortgage. Commercial hard money loans and commercial bridge loans are similar in nature because they help businesses to quickly close deals and offer interest–only payments for the duration of the loan. The interest rate is usually between 8% – 13%.