Commercial Real Estate Financing Options and How They Work

Commercial real estate is a diverse and exciting industry. Whether you’re specializing in real estate investments or looking for a way to diversify your investment portfolio, real estate financing is a great option for you. Before you fall in love with the greatest real estate deals on the market, learn more about some basic financing options and how they work.

SBA Loans

There are two basic types of SBA, or Small Business Administration, loans. First, an SBA 7A loan is a low-risk loan for small projects. It’s a popular option if you need a small, short-term loan, but there are typically higher interest rates associated with it.

SBA 504 loans, on the other hand, require a larger credit score and are for larger projects. There are more strict requirements, like a 20 percent down payment, but it’s a great option if you’re looking to expand your portfolio with a large commercial real estate purchase.

Hard Money Loans

There’s nothing like cash for fast, trustworthy transactions. If you have a cash flow issue, particularly while you’re waiting for a larger bank loan, consider using a hard money loan. This type of loan typically uses your real estate as collateral and has higher interest rates, but it’s a quick and easy option for businesses with low credit scores.

Bank Loans

The traditional bank loan remains an excellent option if you have a great credit score and need a long-term loan on a large project. You’ll receive some of the best interest rates and work with a large, reputable institution. However, you’ll typically need to make a down payment. Ask about any associated fees before signing.

Online Marketplace Loans

A great mid-range option, an online marketplace loan generally has an interest rate between hard money and bank loans. It’s usually a mid-range loan period and is easier to apply than a bank loan. Use this option if you need a short-term loan but aren’t comfortable with hard money interest rates.

There are many ways to receive financing for your commercial real estate investment. Carefully review each type of loan. Depending on the size of your commercial investment and the length of the loan you require, you’ll be able to determine the best financing option for your needs. Whether you’re planning a fix and flip, new office space or a lot for a new facility, commercial property can be an excellent way to increase your investment portfolio and grow your business.

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