How to Get a Commercial Real Estate Loan

You may need to purchase or construct a new property, whether you are looking for office space for your business or a new store in the area. A commercial real estate loan may be a good option if you need more money to purchase it outright.

What is a commercial mortgage for real estate?

Businesses can also use commercial realty loans to acquire a new office space or storefront, just as they use mortgage loans for home purchases. A commercial property loan can be used to buy a building or office space in a mixed-use center or to purchase residential property for tenants. Consider the property commercial real estate if it is used solely for income-producing purposes.

Different types of commercial real estate loans

Let’s take a closer look at the commercial loans shown in the chart.

Traditional commercial real estate loans

Because they function similarly to home mortgage loans, traditional commercial loans are easy to understand. A lender will approve you if you meet the eligibility criteria. The loan will cover the property’s purchase price, less down payments, and fees. Your parcel will secure the loan, and you will make the payments according to the repayment terms.

Each lender will have different terms and rates. However, borrowers may be eligible for fixed or variable rates as low as 3%. If you need to lower your monthly payments, balloon payments are available.

SBA loans

The U.S. Small Business Administration will guarantee at least a portion of loans taken out by qualified small businesses to encourage their success and assist entrepreneurs who cannot access credit elsewhere. SBA-approved lenders can offer lower interest rates to small businesses that otherwise would have to pay higher rates for poor credit or fail to meet income or collateral requirements.

Other perks of SBA loans include: “Less money is needed as a downpayment, as low as 10%-15% instead of 20%,” stated Patrice McElfresh in San Antonio, a Small Business Development Center advisor.

Two types of loan programs are available if you’re looking for an SBA loan for commercial real estate.

  • SBA7(a) loans: This is the most popular SBA loan program. The SBA7(a) lets you borrow up to $5,000,000. Lenders may require collateral. Repayment terms for real estate transactions can be up to 25 years. Interest rates ranged between 7.75% and 10.25% for variable-rate loans and 10.50% and 13.50% for fixed-rate loans as of October 7, 2022.
  • CDC/504 Loans: SBA504 loans combine two loans: an SBA 504 loan that funds up to 50% and a loan from a community development corporation (CDC) which typically funds around 40%. Your down payment is 10%. The terms of real estate are usually 20-25 years. Effective interest rates range from 2.85% to 4.0% as of March 2020.

Prepare. SBA loans can take longer to close than other types of loans. However, you can speed up the process by filing the required paperwork quickly. You will need to meet specific qualifications depending on which type of loan you are applying for, and If you use a 7(a) loan, for example, you will need to prove your ability to repay and your potential long-term success.

McElfresh says the “benefits outweigh” the negatives, referring to lower interest rates and down payments.

Commercial bridge loans

Business bridge loans bridge funding gaps. A bridge loan is a good option if you require a lump sum quickly to compete with others for a real-estate opportunity or to wait for permanent funding. These loans have one major drawback: although you can obtain financing quickly,

Here are some examples of typical rates and terms.

  • Average Rates: 5.72%-11.72%
  • The average loan to value: 80%
  • The average loan: is $1 million
  • The Maximum term is 36 months

To qualify for competitive rates, you will need to have good credit. These rates are generally higher than the rates for the loans mentioned above.

Commercial hard money loans

Hard money loans work in the same way as bridge loans: you can get cash quickly, but you have to repay it quickly. What do you borrow from, and what qualification criteria are the key differences between hard money loans and bridge loans?

Banks and credit unions generally offer bridge loans. Hard money loans from private lenders or investors. Although good credit is preferable for all loans, hard money lenders may allow people with less-than-perfect credit to be approved, as they may be able to use their equity in the company as collateral. This leniency can come with higher interest rates, so it is worth looking into bridge loans from large banks before you settle for this type of financing.

Here are some examples of typical rates and terms.

  • Average Rates: 10%-18%
  • The average loan to value: 60% – 80%
  • The average loan amount is $150,000
  • The Maximum term is 12 months

McElfresh stated, “I would search for hidden fees and ask for the percent rate.” McElfresh noted that while 6% may sound reasonable, 72% per year would be 72%.

Where can I find commercial real estate loans?

Many lenders offer commercial real estate loans. It depends on the type of loan you need. The top three places to search by category are an online marketplace, a national bank, and a commercial lender. (We’ll talk later about other places where commercial real estate loans are.

Commercial Loan Direct from an Online Commercial Lender

Loans are available through more than big banks. Many commercial lenders offer terms and rates that are comparable to traditional banks. You can apply for a loan from your home: commercial loan, Direct partner agencies, lenders, and investment funds to provide financing for small businesses.

Commercial Lending USA: Online marketplace

Due to the increasing number of online loans and the ease of comparison, online marketplaces have become more common in recent years. Commercial Lending USA is a specialist in SBA 7(a), and its online platform can streamline the application process for SBA loans. As we said, this type of loan has a more complicated underwriting process than other types.

There are other types of lenders.

Most small businesses can access the types of lenders mentioned above. There are other funding options and types of lenders that you should look for.

Conduit lenders

These lenders function more as brokers than actual lenders. A conduit lender sells loans to other lenders and receives a commission. Mortgage loans to make them more attractive to investors. Conduit loans may have attractive interest rates. However, it is essential to compare all options to ensure you are getting a great deal.

Peer-to-peer (P2P) lenders

LendingClub and other P2P lenders allow individuals to finance loans instead of banks or commercial loan lenders. Individual investors may be more inclined to lend their loans through a P2P lender than borrowers with less-than-perfect credit.

How to obtain a commercial real estate loan

STEP 1 – ORDER YOUR BUSINESS AND PERSONAL FINANCES

Your credit score and financial history are essential factors in determining the loan you get and what rate you can borrow. While each lender may have different criteria, these are the things lenders want to see.

What LENDERS MAY LOOK AT IN YOUR FINANCES
  • Your credit score To get the best rates, lenders will usually require a credit score of 680 or more. Although you can qualify for a loan with less credit, you will likely pay more. You can improve your credit score by paying off all outstanding credit card debts and reducing the number of installment loans.
  • Your DTI, net worth, and net worth: Your debt ratio to income and total net worth will tell you how responsible and stable you are with your money.
  • Liquifiable assets: Loan lenders may request proof of assets (such as bank statements) to assess your ability to repay a loan should you find yourself in difficult economic times.
  • Your financial history While this is primarily reflected by your credit score; lenders might look into your credit history to determine if there have been any foreclosures, bankruptcy, or defaults on loans.
WHAT LENDERS MAY LOOK AT IN BUSINESS FINANCES
  • Your company credit score: Your business credit score will be somewhere between 0 to 100. Lenders prefer a score of 75 to get the best rates. However, with a high personal credit score. Increasing your revenue and reducing your outstanding debts.
  • What are your assets? Do you have a substantial cash reserve, unpaid invoices, or valuable equipment to repay a real estate loan?
  • Your NOI, The net operating income of your business, indicates how profitable it is after all expenses have been paid. While some lenders may require a minimum amount of revenue to approve you for loans, others (mainly SBA lenders) may still need to.
  • Time in business: It depends on the type of loan you are applying for and what lender you are applying to. You may require proof that you have been in business for at least five years. You can use the previous year’s tax returns to show your business history and average NOI.
  • Licenses for business: Can you obtain the necessary permits and certifications to run your business?

STEP 2 – DOCUMENT THE PROPERTY IN WHICH YOU ARE INTERESTED

You will need to give the lender information about the property you are interested in purchasing to apply for a loan. These details will depend on the lender you choose and the property you are buying. Help lenders determine how to underwrite your loan.

  • Which address is it?
  • Which property type is it (residential or apartment, mixed-use, standalone retail, etc.) )?
  • If applicable, what is your owner-occupancy rate for the property? What percentage of the property’s available space will your business use?
  • How much is the total price for the property?
  • Are you planning to make renovations once you have purchased? How much money will you need to do this?
  • Are there any revenue-generating tenants on the property? What are your expectations for the amount of revenue you will start to collect on day one?

STEP 3 – APPLY FOR A LOAN

You can apply online, by phone, or in person, depending on which type of lender you choose. You’ll need to have the above information to initiate your loan application.

The lender will review your application and send an appraiser to assess the property. If necessary, they will request supporting documentation before notifying you of their decision. This process can take up to three months, depending on which type of loan you select.

Your lender will approve your loan and pay any appraisal or origination fees. After your loan is approved, you can begin working on your new property.

For general inquiries:

  • Email: sales@commerciallendingusa.com
  • Phone: +1 (571) 544-6600