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In Houston, many banks specialize in commercial real estate loans to help businesses finance property purchases, development, and expansion. Here are some typical loan types and options Houston-based banks offer for commercial real estate financing:
Common Types of Commercial Real Estate Loans in Houston
Owner-Occupied Commercial Real Estate Loans:
Available for businesses intending to occupy at least 51% of the property.
Often feature longer terms and competitive interest rates.
Used for purchasing or refinancing office buildings, medical facilities, or other business-occupied spaces.
Investment Property Loans:
For purchasing or refinancing income-generating properties, such as apartment buildings, multi-family units, or retail centers.
Loan terms and interest rates can vary based on the type of property and the borrower’s financial profile.
Construction Loans:
Designed for businesses looking to construct new buildings or undergo major renovations.
Typically, these are short-term, interest-only loans with disbursements made in stages as construction progresses.
Often convert to permanent financing once construction is complete.
SBA 504 and 7(a) Loans:
SBA 504 loans offer long-term, fixed-rate financing specifically for purchasing commercial real estate or large equipment. Ideal for businesses looking to expand in Houston.
SBA 7(a) loans are more versatile, allowing for property purchases and even working capital, with flexible loan terms.
Bridge Loans:
Short-term financing to quickly secure property or cover expenses until long-term financing is obtained.
Common for fast-paced transactions or properties in transition, with higher interest rates.
Hard Money Loans:
Available from private lenders in Houston, these asset-based loans are typically used for investment properties that need quick funding or are not suitable for traditional financing.
Rates are higher, and terms are shorter, but they provide fast funding for projects with high potential returns.
Commercial Line of Credit Secured by Real Estate:
Allows businesses to access funds as needed for property improvements, working capital, or short-term needs.
Interest-only payments on drawn amounts make it a flexible and low-cost option for certain businesses.
Houston Banks and Local Expertise
Houston-based banks like Frost Bank, Allegiance Bank, and Cadence Bank, as well as larger regional banks, provide extensive knowledge of the local real estate market. They understand the unique challenges and opportunities for businesses in Houston’s thriving sectors, such as energy, healthcare, and technology. Many banks offer additional support, such as assistance with navigating zoning laws, connecting with local business resources, and competitive financing terms.
Key Considerations When Choosing a Loan
For commercial real estate loans in Houston, banks consider the borrower’s financial stability, property value, intended property use, and sometimes even local market trends. They also assess:
Loan-to-Value (LTV) Ratio: Typically capped between 65% and 85% based on the property type and purpose.
Debt Service Coverage Ratio (DSCR): Generally a minimum of 1.2-1.5.
Personal and Business Credit: Especially important for SBA and investment property loans.
A variety of banks, credit unions, and private lenders in Houston offer these commercial real estate loans, so comparing terms and conditions is essential for finding the best fit for your business’s goals.
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