How to Differentiate the Many Types of Commercial Real Estate Loans

Every business owner has unique specifications when it comes to their financing needs. Before you apply for a loan, it’s important to understand the various kinds of commercial real estate loans options available to you and which is best suited for your company’s needs.

It’s extremely likely that at some point as a business owner, you are going to need additional financing. It may be when you are first starting out in business. It may be later on as you decide to build, expand or upgrade. Regardless of the scenario, it’s helpful to know about the many types of commercial real estate loans that are available and what might be the best one for your based on what your company’s needs are.

All commercial real estate loans are not created equal, nor are lenders. Each loan has many variables that you need to know about. For example, bridge loans are short term loans that you can apply for when your business is in need of cash flow fast to cover everyday funds such as payroll and inventory orders. These short-term bridge loans are usually available via private lenders that are willing to loan you the money with a few requirements including a very high credit score, and proof of income. Another type of loan is real estate purchase loans, which allow you funds to purchase your building. These often have fixed or adjustable rates, and like bridge loans, you have to have excellent credit as well as a big chunk of savings in either your business or personal accounts. Your building or property is used as collateral in the case of this type of loan.

Another type of loan is called a hard money loan, which is applied for when you need cash — and you need it now. These are used in “immediate need” situations to keep your business going. These types of loans have higher interest rates since they are considered to be high risk for lenders. Joint venture loans refer to a loan that you essentially “share” with a business partner. This happens when you can’t get loan approval on your own nor can another party, so you join together to get the loan approved as a partnership versus individuals.

If you are in a fairly stable financial situation, a participating mortgage might be right for you.

This type of loan is defined by payment — an income percentage versus a pre-determined monthly sum. You will be required to submit a percentage of your monthly income as payment. Generally this loan agreement is made between lenders and business owners who are fairly financially stable borrowers looking for a long-term repayment situation.

Simply understanding the various types of commercial real estate loans can be the difference between getting the right loan for you and being stuck with too-high interest rates or a loan you feel like you will be paying off forever. Do your research not only on the types of loans that would be best for you but the type of lender to help you get the loan you need. Just like there are right and wrong loans for businesses, there are right and wrong lenders for each loan applicant. Finding the right lender can mean getting the right loan. Ultimately that equates to being eligible for the financing you are looking to secure.

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.

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