Commercial Real Estate Loans: An Overview of Your Options

Uncategorized Oct 28, 2021

Commercial real estate is extremely expensive for many businesses — especially ones that are just starting. The good news is that there are a variety of loans that can allow your company to find the perfect commercial real estate.

The only problem is that there are a lot of different types of loans available for commercial real estate out there. As such, finding the best one for you can sometimes be a challenge. Luckily, we’ve organized this guide to give you an overview of all your options. That way, you can choose the loan that best works for your needs. Let’s get started!

What is Commercial Real Estate?

Simply speaking, commercial real estate (CRE) is any type of structure that is used to produce income, or owner occupied real estate for a business. This can be as wide-ranging as landlord-run apartment buildings, or a local donut shop, or your business’s office building. Commercial property usually requires a much higher deposit than residential real estate (35% compared to 20%).

As such, many businesses need to take out loans to cover this steeper cost. Generally, real estate with 51% occupancy devoted to commercial business is much more likely to qualify for loans than other businesses that aren’t as invested in the property. Here are some of the different types of commercial real estate:

  • Apartments
  • Townhouses
  • Condominiums
  • Offices
  • Retail buildings
  • Hospitals
  • Surgical centers
  • Nursing homes
  • Care clinics
  • Warehouses
  • Industrial facilities
  • Hotels
  • Resorts
  • Land developments

What Are Some of the Popular Types of Commercial Real Estate Loans? 

When it comes to commercial real estate loans, there is no one-size-fits-all option. In other words, there are a variety of loan types that can be applied to different circumstances.

These loans vary in terms of their specific uses, rates, and length. It’s important to have at least a general understanding of these popular types of loans. That way you know exactly what to look for when going through a credible commercial real estate financing company. 

Permanent Loans

Permanent loans are first mortgages on buildings that have just been built. Usually, the money from these types of loans is used to pay back construction costs. Judging by the name you might think that these loans might last forever. However, in reality, they usually have an amortization period of twenty-five to thirty years. Some can last as short a period as five years. 

SBA Loans

SBA loans refer to guarantees provided by the United State Small Business Administration. There are two different loan programs you can apply for commercial real estate financing: 504 loans and 7(a) loans. An SBA 504 loan is a bit more restrictive in terms of what you can use it for. Here are some of the things that businesses can use the funds for:

  • Purchase real estate
  • Purchase machinery or equipment
  • Renovations
  • Refinancing a loan

With an SBA 504 loan, a private commercial lender can provide you with 50% of the costs, a certified development company covers the other 40%, and you pay for the remaining 10% as a down payment. However, keep in mind that this down payment percentage will likely be higher for certain providers. SBA 7(a) loans are more general.

Therefore, businesses have a lot more flexibility in terms of how they can allocate the funds. You can acquire a 7(a) loan through a private commercial lender that will guarantee up to 85% of the loan cost.

Like the SBA 504 loans, You cover 10% or more as a down payment. Unfortunately, not all real estate investors are eligible for these types of loans. Make sure to check out these guides if you want to learn more about the 504 loans or 7(a) loans.

Bridge Loans

If you need a short-term loan for cash flow purposes, then a bridge loan is your best option. These types of loans typically last between six months and three years. As the name suggests, these types of loans serve as a bridge to more long-term financing. However, they can also be utilized by investors that want to flip a property for gains.

The only downside to these types of loans is they come with a high-interest rate. You will also need to provide some form of collateral. 

Hard Money Loans

If your business has bad credit, then you should consider going with a hard money loan. These types of loans offer less strict credit requirements. Unfortunately, in return lenders will usually only collateralize 70% of the property’s value.

Since you need to put up your property as collateral it’s important to remember that this is a risky option. If you ever default, then the lender can take your property. However, for some people, it’s the only option available. 

Owner Financing 

If you’re a real estate investor that flips property, then you should consider owner financing. Owner financing allows you to pay the property seller directly instead of taking out a mortgage.

Hence, the eligibility requirements for owner financing are much less strict. This option is ideal for people with low credit scores, freelancers, or people who are self-employed. While traditional mortgage lenders might deny these people, owner financing will provide them with a steady income. 

Need Help With Commercial Real Estate Financing? Contact Alto Capital

We hope this article helped you learn about your different options when it comes to commercial real estate. As you can see, navigating the world of real estate financing can be complicated. Because of this, it’s important to find a financial consultant that has your best interests in mind – and we do just that.

Our financing firm can help you acquire funds between $100,000 and $10,000,000 for your real estate loan. In some cases, we can even offer more. Contact us today to find out more on how we can help you.


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