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Types of Commercial Real Estate Loans

by Eric Johnson

Businesses and individuals use commercial real estate loans to fund offices, warehouses, and income-producing properties. There are 4 major types of commercial loans. These are bridge loans, term loans, SBA loans, and business lines of credit.

Four major types of Commercial Real Estate Loans

Four of the major commercial real estate loans are explained below.

Small Business Administration (SBA) Loans

Loans from the Small Business Administration (SBA) have the support of the government. As a result, the government guarantees to pay back a percentage of your debt in the event of a default. This gives lenders more security, which means that your interest rates will be lower.

Commercial real estate loans can benefit greatly from the low-interest rates and long repayment periods offered by SBA loans. Although Small Business Administration (SBA) loans can be utilized for any business expense, real estate finance is the typical usage for these funds. The SBA does not provide loans to real estate investors. In order to get Small Business Administration (SBA) loans, your company must first meet specific requirements.

Business Line of Credit

Commercial real estate lines of credit are prevalent. Comparable to credit cards. Lines of credit have bigger funding quantities and lower interest rates. It’s also flexible. A “revolving” company line of credit lets you utilize borrowed capital. You’ll be given a credit limit to use as needed.

There’s no rush to use the funds immediately, and you’ll simply pay interest. As you pay off your balance, the money will become accessible to use again and again. Business lines of credit have no predetermined repayment date and higher interest rates than term loans. Flexibility can overcome these shortcomings. Business lines of credit are useful when project or renovation expenses are uncertain. They can also fund operating costs.

Term Loans

Commercial real estate term loans are prevalent. Most people picture term loans when they think of a business loan and any loan. They give a lump sum you repay in installments. Commercial real estate term loans often have 5-year or longer repayment durations. These loans may have a longer amortization duration than their term. Funding levels and interest rates vary by property, down payment, and financial conditions. Banks, online lenders, and real estate lenders offer term loans. Different lenders will have different eligibility requirements. It’s difficult to get bank financing. Online lenders are more lenient with credit scores, down payments, and business history.

Bridge Loans

Short-term bridge loans give funds until borrowers acquire permanent funding. They’re utilized by corporations and people who need money to buy a property while waiting for another to sell.

Bridge loans cover gaps in cash flow when finance is needed but not accessible. They’re utilized when a corporation must return a loan but hasn’t gotten the new, permanent loan. Bridge loans are repaid in one year or less. They’re not a term or SBA loan. Instead, bridge loans are intended to fill cash flow gaps until a long-term solution is found or the immediate issue is resolved.

Conclusion

Rates, terms, and funding times for commercial real estate loans vary. One option may work better depending on your business needs and qualifications. I hope you have got a clear picture of the four major commercial real estate loans in this article.

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