The Basics of Commercial Real Estate Loans
If you’ve dabbled in residential real estate in the past and have had some success, you and your business entity may be considering moving into commercial real estate next. Commercial properties often appreciate over time and can make a smart investment choice in many scenarios. However, the high cost of commercial properties can also make them prohibitively expensive to afford outright. If this is the case but you’re still interested in purchasing real estate and diversifying your portfolio, there are a few types of commercial loans you should know about that could help you purchase the property you want without breaking the bank.
There Are Several Types Available
While the term might make them sound monolithic, commercial loans are actually available in a wide variety of types that may be more or less suited to you, depending on your needs. Some of the most common options include:
- Conventional mortgages
- Small Business Administration loans
- Hard money loans
- Bridge loans
Whichever type of loan you’re interested in, though, be sure you have your paperwork ready before applying. Many commercial loans take a while for approval, due to the large amounts of capital involved.
Prepare a Down Payment
With most commercial loans, but especially with conventional mortgages, you’ll have to be prepared to put in a hefty down payment. While some loans require a 25% minimum down payment, others may require more in order to secure a fixed-rate mortgage. This means that although you won’t have to pay for the property in its entirety up front, you’ll still need to be prepared with a good amount of cash. Additionally, for conventional mortgages, most terms are shorter than for residential properties. Typical commercial mortgages last about five to ten years.
Small Business Administration Loans May Be Competitive
If you’ve ever heard of a Small Business Administration loan, you know that these government-backed loans are popular but extremely competitive because the SBA guarantees part of the loan amount, reducing lenders’ risk. However, because they also typically come with good terms, you may want to consider whether applying would be right for you.
If you’re looking to diversify your business’s investment portfolio, purchasing commercial real estate could be a good decision. Buying a property outright in cash, however, can be out of reach even for investors with deep pockets, given the high price of many commercial properties. If this is the case but you’re still interested in making the investment, consider looking for a commercial real estate loan instead. With the multitude of options available, you’re sure to find one that meets your needs.