The most common use of a commercial real estate loan is used to purchase property that will then be used as a rental property for other businesses. Loans are also obtained to make improvements and renovations of properties that are already owned by the borrower, in most cases this means that the owner occupies over half of the property.
There are five main types of loans that serve a variety of needs and provide various terms. The first commercial real estate loan is directly from the Small Business Administration and is termed a SBA 7(a) loan. This an excellent source of funding for a small business that has been established for at least two years and is looking for a long-term arrangement. There is a funding cap on this loan of $5 million, however. It is not uncommon for an SBA 7(a) loan to have a term that is as long as 25 years and covering up to 100% of the purchase price, requiring no money down on the part of the borrower. However, one of the drawbacks of this loan is that is does take a very long time to obtain, with some application processes taking up to 90 days.
Another loan through the Small Business Administration is termed the CDC / SBA 504 loan. While it is similar to the SBA 7(a), there a couple of key differences. One is that there is no cap on the amount of the loan. Another is that it is required that an applying business have been established and running for 3 years, at a minimum. The terms of this loan are also much shorter and are typically paid off within 10 to 20 years. Both of these loans are done through the Small Business Administration and are backed by government agencies.
Other types of loans vary from a traditional mortgage to a commercial hard money loan. The eligibility of the borrower largely depends on credit score, as well as having been in business for at least a year (sometimes up to 3 years of prior experience). The amount that the borrower is able to place as a down payment is another differentiating factor of many loans. Each lender has slightly different options and terms, so it is incredibly important to be specific in the questions that you ask.
In order to select the loan that will best serve your needs, you must have a plan and know exactly which loans for which you are eligible. If you have been in business for less than 2 years, then you are ineligible. Another factor to consider is how quickly you need the loan. SBA loans can take up to 3 months to obtain and have a tremendous amount of paperwork. Only you know which loan is specifically the best for you, but one factor remains true across the board: the more information you have about your commercial real estate loan options, the better you will be able to determine which is best for you.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.