Not every commercial real estate loan is equal. Instead, it is important to find the loan that most effectively meets your needs and can help you achieve your long-term goals and objectives. Here are a few commercial real estate loans you may consider.
These loans are similar to loans obtained by individuals for mortgages when they buy a house to live in. These mortgages are strictly between the borrower and the financial institution (such as a bank), and they are not backed by the federal government. Along with a down payment between 15% and 35% of the property’s fair market value, the maximum loan amount is typically between 65% and 85% of the property’s LTV comparison. Interest rates range between 4.75% and 6.75%, depending on the borrower’s financial status and the terms of the loan.
SBA 7(a) Loans
These loans are backed by the government through the Small Business Administration (SBA). Typically, these loans require that you have been rejected by a bank for a traditional loan. SBA 7(a) loans have a cap of $5 million, depending on the purchase price of the property, and they require a down payment of between 10% and 15% of the purchase price. Interest rates typically fall between 5% and 8.5%. These loans do have specific application requirements, so it is important to ensure that the application is filled out completely and appropriately.
CDC/SBA 504 Loans
These loans are the equivalent of two loans in one. While 50% of the funding comes from a bank or other lender, 40% of the funding comes from a local community development corporation (CDC). The remaining 10% is made up of the borrower’s down payment. Since these loans operate through the SBA, they have similar requirements as 7(a) loans. Interest rates for these loans vary between 3% and 5%, and they include a 1.5% processing fee.
Whether you are new to commercial real estate or are simply exploring your options, these three loans are a good place to start. Understanding what is available can help ensure that you select the right commercial real estate loan for your needs.