Everyone expects to need a commercial real estate loan when they open a business, but do they know what kind to get? Knowing the types of loans available can be helpful to know as you get started and just in case something happens.
Deciding you want to go into business for yourself is a pretty big deal. No longer will you have to answer to the beck and call of a superior. You will be the superior that everyone else answers to, brings problems to, and expects to have all the answers.
Not only will you need to have all the answers, but you will need to have money. Getting a business off the ground takes money; money that most people will get through commercial real estate loans from their bank.
Yes, there are different types of loans.
There are different types of loans you can apply for through your bank. Each has various aspects that are necessary to know and understand:
Bridge Loans are short term loans borrowers can apply for when they need cash right now to cover expenses. They are typically short-term loans through private lenders who will require proof of income and an excellent credit score.
Real Estate Purchase Loans are the loans you take out to purchase your building, store, or office. These can come with fixed or adjustable rates, will require the borrower to have excellent credit and significant savings in a business and personal account. The commercial property itself will need to be used as collateral.
Hard Money Loans are for when an infusion of cash is needed sooner rather than later, often to save the business or keep it afloat. Since they are given when a business is in dire need, they often come with a higher interest rate to compensate the lender for taking on greater risk.
Joint Venture Loan are what want if you are going into business with a partner. They are common when neither party can receive approval on their own but by applying together, they can make a better case to the lender.
Participating Mortgage is a type of loan gives the lender a chance to enjoy the success of the business. When payments are due, the borrower will send a percentage of the income earned as well as payment. This kind of relationship is more common between lenders and long-term, financially stable borrowers.
When you go into business, you will have a plan, and a few contingency plans to help you deal with whatever problems or issues that may arise. More often than not, challenges and problems will require some sort of financial commitment.
If you have the cash on hand—great, but if not, it can be nice to know there are different types of commercial real estate loans that may help you.
Dennis Dahlberg Broker/RI/CEO/MLO
111 Congress Ave |Austin | Texas | 78701