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Real Estate Loan Types: What Loan is Right for You

Commercial real estate loans are designed to help businesses and investors finance the purchase, renovation, or construction of commercial properties. There are several different types of commercial real estate loans, each with their own unique features and benefits. In this blog post, we’ll discuss the most common types of commercial real estate loans and what type of real estate use case they are best suited towards.

Long-Term Commercial Mortgages

Long-term commercial mortgages (also sometimes referred to as “rate and term”) are one of the most common type of commercial real estate loan. They are generally used to finance the purchase or refinance residential investment properties, office buildings, retail spaces, and other types of stabilized commercial properties.

These loans are typically amortized over 20 to 30 years, and interest rates can be fixed or variable. Traditional commercial mortgages are best suited for businesses and investors who are looking to hold onto their properties for the long term.

Bridge Loans

Bridge loans are short-term loans that are used to bridge the gap between the purchase of a new property and the sale of an existing property. These loans are often used by businesses and investors who need to quickly acquire a new property, but have not yet sold their existing property. Bridge loans are generally structured as interest-only loans with a term of 6 to 12 months, and may have higher interest rates and fees than other types of commercial real estate loans. Bridge loans are best suited for businesses and investors who need short-term financing to acquire a new commercial property.

Construction Loans

Construction loans are used to finance the construction or renovation of commercial properties. These loans are generally structured as short-term loans that are disbursed in stages as the construction project progresses. Once the construction is complete, the borrower can refinance the construction loan with a traditional commercial mortgage. Construction loans typically have higher interest rates and fees than other types of commercial real estate loans, and may require a higher down payment. Construction loans are best suited for businesses and investors who are looking to construct or renovate a commercial property.

SBA 7(a) Loans

SBA 7(a) loans are backed by the Small Business Administration (SBA), and are designed to help small businesses obtain financing for real estate, equipment, and other business expenses. These loans are often used to finance the purchase or refinance of owner-occupied properties, such as office buildings or retail spaces. SBA 7(a) loans offer longer repayment terms than traditional commercial mortgages, and may have lower down payment requirements. These loans are best suited for small businesses that are looking to purchase or refinance owner-occupied commercial properties.

SBA 504 Loans

SBA 504 loans are another type of SBA-backed loan, and are designed to help businesses finance real estate and equipment purchases. These loans are typically used to finance the purchase of owner-occupied commercial properties, as well as the construction or renovation of commercial properties. SBA 504 loans are structured as a partnership between the borrower, a Certified Development Company (CDC), and a traditional lender. The borrower contributes 10% of the project costs, the CDC contributes 40%, and the traditional lender provides the remaining 50%. SBA 504 loans are best suited for small businesses that are looking to finance the purchase or renovation of owner-occupied commercial properties.

In conclusion, there are several different types of commercial real estate loans available to businesses and investors. The best type of loan for a particular use case will depend on the borrower’s specific needs and goals. By understanding the different types of commercial real estate loans available, borrowers can make informed decisions and secure financing that meets their needs.

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