Commercial real estate lending provides loans and other financing opportunities to companies to purchase properties for business-related purposes. These loans act as a critical part of the economy as they are essential for financing small to medium-sized startups. Additionally, commercial real estate loans tend to be bigger than residential real estate loans.
Commercial real estate loans may be sought for a variety of purposes, such as a company looking for finances to acquire a rental property or a business seeking to purchase a manufacturing warehouse. There are also several different types of commercial real estate loans; they’re categorized mainly into five for real estate purchases:
1. Bridge loans
These loans are short-term commercial real estate loans issued for a time period of six months to two years. Commercial bridge loans are primarily used to serve two purposes: (1) the buyer or borrower expects to be able to sell the property within the duration of the bridge loan, or (2) the borrower attempts to notably improve their credit rating within the time frame of the loan. For this reason, bridge loans are often used by commercial building developers, who complete the construction and sell the commercial building to another party within the time frame of the loan.
2. Hard Money Loans
Commercial hard money loans are usually only offered by private lenders or investors. These loans are guaranteed against the total monetary value of the property. Hard money is more common amongst companies with less than stellar credit. These loans are also sanctioned for very short time frames, generally for a year or less.
3. SBA loans
Small-sized businesses in the United States of America can also apply for an SBA loan that guarantees a favorable interest rate to the borrower since the lender is exposed to lower risks. Funds accumulated from this loan can be used for property purchases, working capital, purchasing inventory, and other business-related purposes.
4. Ordinary Commercial Real Estate Loans
This type of loan may be referred to as a permanent loan as it closely resembles the residential mortgage financing structure. The purchased property typically serves as the loan as collateral. Companies securing this type of loan can make use of inventory, equipment, a deposit account, or a previously owned property to serve as collateral.
5. Seller Financed Loans
A business seeking to purchase a commercial property may legally obtain finances from the seller. These loans are readily made available for income-producing properties. They are more favorable for the buyer as the payment terms are flexible and the interest rates charged are relatively low to that of conventional commercial bank financing.
At Commercial Private Equity, we are a team of private hard money lenders with over 75 years of experience in the industry. We deal in commercial hard money, bridge loans, construction loans, raw land loans, workouts loans, and other specialized loans in Atlanta, GA. Schedule an appointment to discuss your commercial loan program!