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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