Commercial loans for real estate investors are one of the more lucrative investments a person can make. These income-producing properties offer numerous advantages over residential investments, as they can be a dominant source for not only building wealth but generating monthly cash flow. The commercial loans for real estate investors are available and are used to fund respective deals.
Types of Commercial Investment Loan Types
There is a wide range of commercial loans for real estate investors, and it is up to the investor to decide which financing option to go for. Each type of loan has unique eligibility requirements, like minimum credit score, experience level, and down payment requirement. These commercial loans for real estate investors also have different terms to pay attention to, including the loan term, interest rate, and loan-to-value (LTV) ratio.
- Small Business Administration (SBA) Loan
- Conventional Loan
- Commercial Bridge Loan
- Hard Money Loan
Small Business Administration Loans
An SBA loan is a small business loan that is partially guaranteed by the government (the Small Business Administration), which eliminates some of the risks for the financial institution that is issuing the loan. In general, eligibility is based on what a business does to receive its income, the character of its ownership, and where the business operates. Typically, businesses must meet commercial property loan requirements, be able to repay, and have a sound business purpose. Even those with bad credit may qualify for startup funding.
The SBA offers unique benefits such as Lower down payments, flexible overhead requirements, and no collateral needed for some loans.
Otherwise known as traditional loans, conventional commercial real estate loans are those issued by banks or lending institutions. These are often used to purchase and finance assets like owner-occupied office buildings, retail centers, shopping centers, and industrial warehouses; conventional loans have developed a reputation for some of today’s most widely used commercial real estate loans.
Though conventional loan requirements are more stringent than Government-backed mortgages they still have a higher bar for approval than other types of loans do. They tend to be good for borrowers with good credit and a low debt-to-income (DTI) ratio who can make a down payment of 20%, as this allows them to avoid paying for private mortgage insurance (PMI).
Commercial Bridge Loan
This represents a temporary loan option for investors to exercise—one that bridges the gap—until refinancing becomes available to make the switch to a longer-term loan. Typically offered by institutionalized lenders, commercial bridge loans award many borrowers the ability to compete with all-cash buyers. The benefits of this loan are increased the volume of acquisitions, availability of cash, flexibility and Adaptability, opportunity and timing.
Hard Money Loan
Hard money loans are a financing tool every real estate investor should keep in mind. A hard money loan is made available to commercial investors by organized semi-institutionalized lenders. Hard money lenders are licensed to lend to real estate investors and specialize in short-term high-rate loans with fees that award many investors the chance to buy commercial real estate. It offers unique benefits such as fast loan approval and funding, using leverage to get more deals, Income history, and perfect credit scores are not necessary, negotiating a lower purchase price with a quick close.
Once these all these are considered, you’re well on your way to getting the real estate you need to take your business to the next level from private commercial real estate lenders.