What You Need To Know About Commercial Real Estate Financing
Real estate can be a lucrative investment opportunity. Whether you purchase a residence to rent out, develop some property or open commercial space, there are plenty of ways to turn real estate into returns. Before you do anything, however, it is a good idea to familiarize yourself with the basics of commercial real estate financing.
Commercial Property Financing
When you buy real estate for business purposes, the lending process is a little different than it is when you buy your personal residence. Any property that produces income and is used for business purposes can be considered commercial property. When you buy real estate with a commercial loan, you likely will need to take out the loan as a formal business entity, such as a limited liability company, instead of as an individual.
Types of Loans
There are plenty of types of commercial loans. Each has its own benefits and drawbacks for buying real estate. These are some of the most common:
- Conventional Loan: A bank loan is the most common way to finance any real estate purchase, whether commercial or not. These loans are very flexible in terms of what you can use them for and how much you can borrow. However, the qualification requirements may be higher than on some other loan types.
- Hard Money Loan: Hard money loans are typically shorter-term than conventional loans and often carry higher interest rates. However, they also have more flexible qualification requirements. Additionally, they can often be approved and funded more quickly than conventional loans.
- SBA Loan: The Small Business Administration works with some lenders to provide small businesses with generous interest rates and larger loans than they may otherwise receive. SBA loans are usually only available for owner-occupied property. In other words, if you plan to rent out the property, you likely can’t use an SBA loan.
- Private Money Loan: Some lenders will help you connect with private lenders. These loans may be more flexible than some other types. They are often customized to the project and the borrower. However, they can be hard to find.
Get Started With Real Estate Financing
With these basics of commercial real estate financing in mind, you are ready to start borrowing for your business. Whether you need an owner-occupied or investment property, you can use the above loan types to help. Keep in mind that commercial property loans are often riskier and more expensive than residential mortgages. However, the potential returns are often significant.
