Commercial Real Estate Loan
A loan for commercial real estate is a type of mortgage loan that can be utilized for purchasing, refinancing, or renovating a commercial property. It is also known as a CRE loan.
Commercial real estate loans are offered by a wide range of financial organizations (both online and offline), each with its own set of terms, fees, and prerequisites. When looking for a lender for a commercial real estate loan, a business owner should first assess the objective of the loan and then locate a lender that best suits that purpose. If you get more than one loan offer, go with the one whose interest rate and terms come closest to satisfying your requirements.
Ways to Finance Commercial Real Estate
Understanding commercial real estate financing basics demands knowledge of commercial property financing choices and the ability to choose the right one. Commercial property loans can finance the property as well as fund any construction projects. And investors can use commercial property financing to retain fully running and leased assets.
Banks, private lenders, insurance companies, pension funds, and the SBA offer the following commercial real estate financing options:
Conventional Bank Loan
Banks like to lend to borrowers with solid credit histories for commercial real estate loans. Conventional bank loans are a suitable alternative for those with a credit score of at least 660 and mid-to-large-sized projects. Bank loans provide low rates and don’t require owner occupancy. However, most bank loans require a 20% down payment and a prepayment penalty.
SBA 7A Loan
SBA offers some of the most affordable loans for commercial real estate investments and guarantees a percentage of each loan. SBA-backed loans increase the legitimacy of debtors and reduce lender risk. 7A loans are affordable and suitable for small enterprises. 7A loans have higher rates of interest than SBA 504 loans.
SBA 504 Loan
The 504 loan is ideally suited for large investment ventures; worth above $1 million. As a down payment, the investor must contribute 10% of the loan amount, while 40% of the loan comes from an SBA Certified Development Company. The remaining 50% is obtained through a loan from the lender.
Hard Money Loan
Hard money lenders base their decisions on the value of the collateral rather than the borrower’s credit. Hard money loans are popular among investors because they provide fast financing for commercial real estate and allow businesses to close deals while waiting for conventional bank loans to be approved.
Joint Venture Loan
When an investor can’t get commercial real estate financing or doesn’t want to bear all the risk, a joint venture may be appropriate. Borrowers might apply for a joint venture loan and share the risks and returns. The joint venture loan binds the parties exclusively around the property and doesn’t necessitate a real estate partnership.
Online Marketplace Loan
Online marketplaces connect borrowers with private investors who finance commercial assets. Online marketplace loans have higher interest than bank loans but lower than hard money loans. Online marketplaces generally provide borrowers with six month to 36 month loans.
Best Commercial Real Estate Financing
A standard business loan will not be sufficient if you’re purchasing commercial real estate for your business or firm, such as office buildings, warehouses, retail stores, etc. You will need commercial real estate financing for this purpose.
The best commercial real estate financing for your company comes from lenders who offer many commercial real estate loan options, lower interest rates and reasonable loan requirements.
U.S. Bank
U.S. Banks offer SBA commercial real estate loans for long term owner occupied properties with mortgages of up to 25 years. U.S. Banks have higher credit criteria than other institutional lenders.
Wells Fargo
Wells Fargo is a good choice for commercial real estate customers seeking a standard mortgage. They provide up to $1 million for 5, 10, or 20 years for larger projects.
JPMorgan Chase
JPMorgan Chase is the nation’s premier multifamily lender, delivering cost-effective solutions and fast loan closings. The maximum CRE loan amount at JPMorgan Chase is $15 million plus and over $25 million for multifamily developments.
Conclusion
The key to applying for commercial real estate loans is to ensure you have the credentials and history necessary to get accepted for the loan amount and terms you want. Commercial real estate is a broad field with several subspecialties and each lender offers different maximum loan amounts, terms, rates, and conditions. Compare lenders and products to find the best CRE loan for your business.
