The first caveat is this: there really are no typical rates. This is because the commercial real estate interest rate you obtain will be dependent, to a large degree, on your creditworthiness, your debt-to-income ratio, the amount of money you have in the bank, your credit score, the length of time you’ve been in business and your collateral. All commercial loans usually carry higher interest rates than residential loans. This is often due to a limited credit history as well as an increased risk to the lender. Other considerations include the fact that the larger, longer-term loans generally have higher rates. There are also some fixed-rate loans out there without end-of-term balloon payments, but those are few and far between and even fewer qualify.
The following are typical commercial real estate interest rates based on the type of lender. As noted, these will vary depending on the many variables we previously listed. Because we are currently in a period of extremely low rates, these will fluctuate and tend to rise as the economy stabilizes or continues to mend, creating rising interest rates. Life insurance companies usually carry one of the lowest interest rates often starting in the mid-3 range. They prefer to make loans to established borrowers and ones with high credit scores and creditworthiness. You will also need a fair amount down. Traditional banks are currently in the 5 to 7 percent range. They too are difficult to qualify for and require good credit and a low debt-to-income ratio.
The Small Business Administration offers loans with rates that currently fall in between 4 and 9 percent. You will need to have been in business for at least two years, have a credit score above 680 and show some profit.
Hard money loans are typically funded by private individuals or small groups. Interest rates vary widely depending on the type of loan, the project and the particular investor. On average, they are usually in the 10 to 18 percent interest rates. They are often short-term loans with borrowers using their businesses or property’s collateral in order to obtain the loan. Their credit score and credit worthiness is less important to these types of lenders. On average, their terms range from 1 to 3 years.
As you can see, commercial real estate interest rates vary widely, starting in the 3.5 percent range and going all the way up to 20 percent and above. In order to get the best rate, know your project, come with a budget and permits in hand, know the value of your hard-asset, and save up until you can have some “skin in the game” which leaves vulnerable investors feeling a little better about their investment. Call us at Level 4 Funding for a no-obligation quote.
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.