Commercial property loans are a financial instrument that can be of tremendous value. However, consider that they are also different from home loans.

A commercial property loan allows you to access real estate that can produce income. Think of businesses like shopping centers and office buildings. Even hotels and shopping malls are in this class of real estate.

This real estate must be in use exclusively for business purposes. You should know that interest rates and costs vary. Moreover, the interest rates can start at around 3.5%. However, your circumstances will dictate much of your financing.

Commercial loans are effective as funding for major capital expenditures. More on that later as we dive into what you should know about business loans for real estate, including:

●       Types of commercial real estate loans

●       Requirements for commercial real estate loans

●       How these loans work

●       Terms of commercial loans for real estate


So what are the types of commercial property that are eligible for a real estate loan?


Types of Commercial Property Loan for Real Estate

Most important to remember is that the four business loans for real estate are conventional bank loans, hard money loans, home equity loans, and private money loans.

Banks and lenders offer conventional commercial real estate loans. This financing is effectively a mortgage that is secure through a lien on the commercial property.

In addition, there are hard money loans. This kind of financing can be helpful as a business loan for real estate. It presents a short-term solution that comes from a private company or individual. Providing property or an asset as collateral may allow access to a hard money loan.

Home equity loans are among the commercial property loans for real estate. This option can work in installments as a type of consumer debt.

Homeowners can even borrow against the value of their home to secure a business loan for real estate.

Private money loans come in the form of financing from a private lender. This loan works in the short term as a loan for real estate. For example, borrowers can use it to purchase new real estate or refinance existing real estate. With more flexibility, accessing financing can be more painless with private money loans.

Meeting the borrowing criteria is essential to finding the funding for you.


Requirements for Commercial Real Estate Loans

Having a commercial loan for real estate can help if your business decides to relocate. 

Conventional bank loans are financing that a government entity is not securing. A home buyer’s loan requires prospective borrowers to provide credit history, current credit rating, a complete mortgage application, and additional documents that your lender will determine.

While conventional bank loans often have higher interest rates, the rate is typically fixed and will not change for the life of the loan. Along with this come stricter lending requirements than government-backed options.

Hard money loans require the property’s value to reflect a benefit for the lender. For example, the lender may want you to demonstrate a history in real estate. In addition, a hefty down payment or equity is often a requirement to use as collateral. Cross-collateralizing or using multiple properties to secure a single loan is sometimes commonplace with hard money loans for real estate.

Private money loans are among the options when business owners are looking for additional square footage or are ready to take action to purchase a property they may be leasing. However, there is often a lot of variation in the terms, rates, and requirements from one individual to another.

The prospective investor could require more depending on the relationship, the business size, type, and revenue. In terms of credit rating, down payment, and repayment terms, these are primarily individual to the arrangement.

Therefore, an earnest dialogue between the borrower and the investor or lender has to occur.

Just what the terms of your commercial property loan for real estate will be can vary. So let’s peel back the layers.


Terms of Commercial Property Loans for Real Estate


Real estate can be very lucrative. What terms come along with the financing that helps secure real estate is an essential piece of the puzzle.

Private money loans have a term that runs around 12 months. However, options are often available to extend the loan from 24 months to 5 years, depending on the property’s value.

Conventional bank loans often have repayment options in 10, 15, 20, 25, and 30-year terms. You may be able to select your terms depending on the lender and your qualifications.

Hard money loans offer a loan for a short-term real estate option and are secured by the property. Private investors can supply hard money loans with terms that run for 12 months, though borrowers can extend that loan to 2-5 years.

Many of the most important benefits of business loans for real estate include the flexibility to grow a real estate portfolio thanks to a borrower’s creditworthiness. In addition, more cash flow is a possibility when a business loan for real estate.

Talk with the professionals at Small Business Bank to find out what financial instruments might suit your real estate needs.