The Different Types of Commercial Property Loans

If you’re in need of small commercial property loans, it’s important to understand your options from the different types. Learn more here.

Everyone says that real estate is one of the safest long-term investments, regardless of how much money you’re working with. If you have more to spend, you can even try flipping houses for a profit. However, you don’t need to be flush with cash on hand to start investing.

There are a lot of different kinds of commercial property loans to choose from. It’s all too easy to pick the wrong one and find yourself saddled with debt years down the line, though. 

Here are some of the different property loans available and which one is best for your investment goals.

Long-Term Fixed-Interest Commercial Mortgage

This is the most common form of commercial real estate loan out there. It works like a normal home mortgage but has different terms. 

For example, real estate loans usually have a much shorter repayment schedule. You could spend half of your life paying for your home’s mortgage, but loans for commercial real estate usually expect repayment in under a decade. 

In addition, you may only qualify for one if your business has existed for over a year and have a FICO credit score of over 700. 

Interest-Only Payment Loan

This type of loan is also known as a balloon loan because of how it works. Instead of regular payments towards the loan amount, you only need to pay the interest. You’re then expected to cover the full amount by the end of the term. 

The reason you would go for this loan is if you expect to make a big return on your investment later rather than sooner. It’s easier to handle the early payments when you’re still investing in your business venture. However, it’s a higher risk if you don’t profit in the end. 

Refinance Loan

Refinancing is an option that involves revising and replacing the terms of your current agreement with another. Although there are additional fees you’d have to pay, it may help you earn lower monthly payments and reduce your debt. 

Hard Money Loan

A hard money loan comes from a private investor rather than a loan agency. As such, these are actual people that see value in commercial real estate as an investment opportunity. Often, loan terms range from half a year to up to two years with higher interest rates. 

This is one of the most popular loans for anyone trying to fix up a property and flip it for profit. Most of those jobs don’t take too long, and the minimum time it takes is about six to twelve weeks. At worst, it’ll take months. 

If you want to qualify for a hard money loan, try to have some money to invest at the start. Shoot for about a third of the overall cost to convince the lender that you’re worth the risk. 

Small Business Administration Loan

SBA loans are covered by the government, much like federal student loans. They serve to give you an extra layer of security to keep you from defaulting. 

These are ideal due to lengthy terms and their low-interest rates. However, they’re not available for every kind of real estate investor. They specifically exist for business expenses. 

SBA 7(a) loans are one type that can provide millions of dollars in funds. They come with longer repayment periods. 504 loans are another long-term type with high funding amounts. 

Bridge Loan

A bridge loan is similar to a hard loan but with lower interest rates and an approval period. You get them from traditional banks and require a down payment. 

They’re a good option if you’re doing renovations or construction before refinancing. You may also be able to use one if you’re flipping a house that only needs some minor repairs or changes. 

Construction Loan

Construction loans specifically exist to cover the costs related to building structures. This includes the cost of materials and labor. If you already own undeveloped land, that can be used as collateral to help acquire the loan. 

You can use this loan for anything from offices to multi-family rental units. The terms can go for as long as 36 months and lead to a long-term mortgage.

However, payments may start up to six months after you receive the loan. In addition, the loan is usually received in a series of advances rather than all at once.  

Blanket Loan

While refinancing your loan involves transferring debt, a blanket loan consolidates it. Businesses can fold multiple properties into a single arrangement for more convenience. Since everything is grouped under one loan, you can sell properties without incurring penalties. 

The only issue with utilizing a blanket loan is that they’re difficult to acquire. You’ll have to do so with a loan agency or bank that you’ve worked with in the past. In addition, they come with larger payments and default penalties since everything is grouped together. 

Business Line of Credit

Opening up a line of credit for your business works much like any other type of credit card you might use in your personal life. The main difference is that they have much higher funding amounts and lower interest rates. As such, it’s more flexible. 

Not only is this useful for larger investments, but you can also make use of it throughout the year. You only pay back what you’ve borrowed. The downside is that traditional loans offer better interest rates and a repayment schedule. 

Choose the Best Commercial Property Loans

If you’re looking for commercial property loans, it’s important to find the best one for your specific investment. Hard money loans are great if you’re going to flip a property but aren’t meant for the long term. Meanwhile, construction loans work best when you’re building something new. 

Merchants Mortgage has you covered if you need a private real estate loan in the Colorado area. We specialize in everything from short-term residential bridge loans to commercial loans.

Apply now for pre-approval and contact us with any questions.

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