10 types of commercial property loans
1. Traditional Commercial Mortgage (Permanent Loan)
Purpose: To purchase or refinance commercial real estate like offices, retail spaces, or industrial properties.
Loan Term: 5 to 20 years, with amortization periods up to 30 years.
Interest Rates: Fixed or variable, often based on market conditions.
2. Commercial Real Estate (CRE) Loan
Purpose: General loans for purchasing, developing, or improving commercial real estate.
Loan Term: 10 to 30 years.
Interest Rates: Fixed or variable, usually based on LIBOR, SOFR, or prime rates.
3. SBA 504 Loan
Purpose: To finance the purchase or improvement of fixed assets like real estate and heavy equipment.
Structure: Funded partially by a Certified Development Company (CDC) and partially by a bank or private lender.
Loan Term: 10 to 25 years, with a low, fixed interest rate on the CDC portion.
4. SBA 7(a) Loan
Purpose: General-purpose loan that can be used to buy or refinance commercial real estate, along with other business-related expenses.
Loan Term: Up to 25 years for real estate.
Loan Amount: Up to $5 million.
Interest Rates: Variable, based on the prime rate plus a margin.
5. Bridge Loans
Purpose: Short-term financing used to "bridge" the gap between the purchase of a new property and securing long-term financing.
Loan Term: 6 months to 3 years.
Interest Rates: Higher than traditional loans due to the short-term nature and higher risk.
6. Construction Loans
Purpose: To finance the construction of new commercial properties or major renovations.
Loan Structure: Typically interest-only payments during construction, followed by a lump-sum payment or transition to a permanent loan.
Loan Term: 1 to 3 years (until construction is completed).
Interest Rates: Higher due to the inherent risks of construction.
7. Mezzanine Loans
Purpose: To bridge the gap between the amount the borrower can raise and the cost of acquiring or developing a property.
Structure: A hybrid of debt and equity financing, often used when a property buyer lacks sufficient collateral.
Loan Term: Varies, often tied to the completion of a project or refinancing.
Interest Rates: Higher due to the subordinate position in the capital stack.
8. Hard Money Loans
Purpose: Short-term loans primarily used for quick property purchases or developments, often when traditional financing isn’t available.
Collateral: Based on the value of the property, rather than the creditworthiness of the borrower.
Loan Term: 6 months to 2 years.
Interest Rates: Very high compared to traditional loans, typically 10% to 18%.
9. Blanket Loans
Purpose: To finance multiple properties under one loan, typically for real estate investors with a portfolio of properties.
Loan Term: Varies based on lender.
Interest Rates: Fixed or variable.
Flexibility: Allows for the sale of individual properties within the portfolio without paying off the entire loan.
10. Commercial Mortgage-Backed Securities (CMBS) Loans
Purpose: Loans bundled into a pool and sold as securities to investors, often used for large-scale commercial properties like shopping malls or office buildings.
Loan Term: 5 to 10 years, with longer amortization periods.
Interest Rates: Fixed, usually lower than traditional loans.
Loan Structure: Non-recourse, meaning the lender can only seize the property in case of default, not other assets of the borrower.
Each of these loan types serves a different need in the commercial property market, from short-term financing solutions to long-term, low-interest loans for stable investments. Businesses can select the most suitable option depending on their property type, financial health, and overall goals.
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