Every small business owner wants to focus their attention on growing their business. Some of the best ways to ascertain long-term growth include purchasing real estate, renovating an existing property, or refinancing a real estate debt. Nevertheless, getting a commercial real estate loan can be challenging to deal with. This article will suggest a few ways to get a commercial real estate loan for your business. It will show how essential it is for you to find suitable lenders for commercial real estate and help you make the best decision.
Commercial real estate lending provides individuals with mortgage loans or other financings. It helps purchase properties for business purposes. The properties include lodgings (like apartments, hotels, housing developments, and condominiums), retail stores (like malls and shopping centers), office buildings, and warehouses. They also consist of other light industrial manufacturing sites such as self-storage facilities, hospitals, restaurants, recreation parks, and even raw land.
Why Are Commercial Real Estate Loans Necessary?
Most people already know that commercial real estate loans are an essential part of the economy for two main reasons. First, these are indispensable financing solutions for all businesses that wish to operate to their total capacity. Second, since commercial real estate loans are ideally more significant than other (residential) loans, they often account for a lot of income for commercial banks and other lenders for commercial real estate. Besides, you might apply for commercial loans for various purposes. A company might want to purchase a warehouse, office, or manufacturing unit to operate its business. Alternatively, investors may look for financing to acquire a rental property that helps them generate cash flow. Lastly, a company may require construction financing to fund an upcoming development project.
Different Types of Commercial Real Estate Loans
Even though you can utilize multiple financing options in commercial real estate lending, there are four critical categories that you need to keep in mind. They are bridge loans, seller-financed loans, ordinary commercial real estate loans, and hard money loans. However, you need to remember that the kind of financing you choose will dictate the outcome, so choose carefully. Let us now look at those in detail.
A bridge loan refers to a short-term commercial real estate loan lasting around six months to two years. Such loans are commonly used for one or two purposes – either you expect to sell the property within the loan timeframe or hope to significantly improve your overall credit rating during the timeframe. Bridge loans are for commercial developers who wish to construct an office building on purchased land, which they plan on selling to another party soon. However, these are also suitable for real estate investors planning to buy a residential property and flip it within a narrow timeframe.
Ordinary Commercial Real Estate Loans
Ordinary commercial real estate financing is very similar to residential mortgage financing. Many lenders for commercial real estate sometimes refer to them as permanent loans. Like typical residential mortgage loans, the property you plan to purchase will ideally serve as the loan collateral. However, you can also secure a commercial real estate loan using other forms of collateral such as inventory, equipment, or any other property that the company already owns.
Seller Financed Loans
Similar to residential mortgage loans, any business looking to buy commercial property should obtain financing directly from the seller. When available, seller-provided loans are ideally preferred by businesses over conventional bank financing since their payment terms tend to be much more flexible. Buyers may also get a lower interest rate when applying for a seller-financed loan. Remember that seller-financed loans are often the best choice to purchase an income-producing property such as a residential complex or if a company plans to buy a property from an individual instead of buying from another company.
Hard Money Loans
Hard money loans are offered by either private lending companies or private investors. Such loans are strictly guaranteed by the total value of the property the amount is loaned against. All hard money loans are offered to less than stellar credit businesses. Remember that you may find it very difficult to obtain a loan from a credit union, commercial bank, or other traditional money lenders without proper credit. Most hard money loans tend to be concise, often less than one year. In that way, they are pretty similar to bridge loans.
Want To Learn More? Contact Real Estate Funding Solutions Right Away!
Looking for an expert to navigate the perfect funding solution? Reach out to Real Estate Funding Solutions. We are your go-to money lenders for commercial real estate, no matter how old or new your business is. Our team has relevant knowledge and experience, enabling you to make the best decision for your company’s future. Click here to learn more about our financial products and services.