Where Can I Get A Small Business Loan To Purchase Real Estate
Many different small business loan types are available to purchase real estate, both from commercial banks and non-traditional lending sources.
Conventional business loans are available for real estate purchase as term loans from banks Businesses needing more than $250,000, as well as those with good credit and heavy capitalization, are good fits for conventional small business financing.
One of the best options for small business owners is a Small Business Administration loan. These are government-guaranteed loans made to borrowers by financial institutions and generally have lower rates and more flexible terms.
SBA 504 loans are often called SBA Commercial Real Estate Loans and can be used for purchasing an existing building, land or land improvements, or constructing or renovating facilities. This flexibility makes an SBA 504 loan an effective option for a real estate loan.
An SBA 7 loan is another option. These small business loans are term loans with amounts ranging from $50,000 to $5 million that can be used for commercial real estate, business acquisition, equipment, working capital, debt refinancing and more.
Common Sources Of Commercial Mortgage Financing
There are many sources of commercial financing in the market. Commercial loans are offered by banks, credit unions, insurance companies, and government-backed lenders. Private investors also lend commercial mortgages but at much higher rates.
The right kind of commercial loan for your business depends on the loan features you need. You must also factor in your business strategy, the type of commercial property, and your credit availability.
Below are several common types of commercial loans and where you can obtain them:
Commercial Real Estate Loans From Other Sources
Non-bank sources of commercial property loans include private equity, hedge funds, insurance companies, and REITs. Their terms range from very restrictive to highly flexible.
Life insurers, for instance, tend to prefer lower LTVs, newer buildings, and excellent credit. Their prepayment penalties can be harsh. On the other hand, Real Estate Investment Trusts lend rather aggressively, without personal guarantees, for shorter periods. Clients borrow larger amounts because the upfront cost is high for smaller ones.
- Pros: Range of terms and guidelines to meet a variety of needs, personal guarantee not usually required
- Cons: Higher costs and interest rates, prepayment can be very expensive
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Know Your Credit Score
Before you sign on the dotted line of a small business real estate loan, there are several key pieces of information you need to consider. First among them is your business credit score.
These scores are issued by credit reporting agencies, such as Dun & Bradstreet, Equifax and TransUnion, and provide a summary of your trustworthiness to lenders. Although personal credit scores range from 300 to 850, business credit scores often range from 0 to100.
Often, lenders offering loans to buy commercial property require a minimum credit score in the range of 660-680.
However, if you want to qualify for the best commercial real estate loans, then you should fall safely within the highest business credit score bracket. The better your score, the more likely youll get approved for the most competitive interest rates and terms.
Commercial Real Estate Financing Calculator
To calculate a commercial real estate financing scenario, an investor will need to obtain the possible loan amount, interest rate, amortization term, and any balloon payments if applicable. The loan amount represents the total principal on the commercial loan, while the interest rate varies greatly depending on the lender type. Commercial loan terms typically range between five to 20 years, whereas the amortization period can be longer than the loan term. The balloon payments come into play when the borrower makes payments throughout the duration of the loan term but is then required to make a final payment on any outstanding amount on the principal. Although this may sound extremely complicated, luckily, there are many online financing calculators available, such as on Mortgage Calculator.
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Traditional Commercial Mortgage Loan Terms
While traditional commercial mortgage loans require a higher personal credit score than the government-backed options, they also call for fewer years in business . Since the government isnt sharing in the risk, banks and commercial lenders hold these types of loans to a higher qualification standard. So if your business is already well established and profitable with a solid credit score, a traditional commercial mortgage would be your best bet.
Commercial Real Estate Loan Repayment Schedules
With a commercial mortgage loan, there are plenty of repayment plans you can choose from, but the most common is the 30-year, fixed-rate mortgage loan. With commercial real estate loans, however, repayment terms typically range from five to 20 years, and some commercial loan types provide short-term financing where payment is due within a year.
Also, its less common with commercial real estate loans for the amortization schedule to match up with the repayment term. For example, you may get the option for five, 10, or 15 years to pay back your debt, but the amortization schedule goes as high as 25 years.
In this situation, the commercial loan is not designed to be paid in full by the time you complete your repayment term, and your business will need to make a balloon payment at the end to satisfy the remaining balance. If you dont have the cash required to make the balloon payment, youll need to have another commercial real estate loan ready to refinance the remaining debt.
Of course, there are some lenders that offer full amortization, but youll need to specifically search for that feature when youre shopping around.
Its also important to note that commercial real estate loans typically dont allow you to pay off your loan early without some kind of fee or penalty. Here are some potential ones you can come across:
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What You Should Know About Commercial Hard Money Loans Florida
Commercial hard money loans Florida is typically used to finance commercial real estate projects that are riskier than other loan types. These quick-disbursing loans allow you to get whats needed before the bank gives you the go ahead and can usually be used in less than 30 days.
Full Capital Stack Solutions For Commercial Real Estate Owners Developers Entrepreneurs And Enterprises:
For merchant builders, the name of the game is IRR. For everyone in the business, it’s risk-adjusted, levered returns. It is very much about the time-value of your money. But strategies differ, as do capital solutions.
Commercial Real Estate Loans and its team of expert commercial mortgage brokers have a rolodex as deep as any other national establishment. However, we pride ourselves on what make us different: access to more lending institutions and more capital, more diverse capital structures and solutions, in-house underwriting, and the same obsessive, hand-on, client service for $1MM loans as $50MM loans.
Whether youre sourcing a mezzanine piece that can’t be secured by a lien for your value-add office building opportunity, or you just need the best pricing on good, old-fashion life company loan for your stabilized property, Commercial Real Estate Loans will leverage our relationships to benefit you first. Everyone else, including us, is secondary.
Full Capital Stack Solutions For Commercial Real Estate Entrepreneurs
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Factoring The Closing Costs
Besides gathering a significant down payment, you should prepare your finances for other expenses associated with closing a loan. Refer to the following commercial loan fees below:
Commercial lenders pay a fee for the time their staff dedicate to underwriting and processing a loan request. This typically costs around $500 to $2,500. That fee must be stated in the term sheet and is usually paid upfront or via deposit once the loan term is implemented.
Lender’s Origination Points
Most banks and credit unions charge 0.25 to 0.5 of the loan amount for origination fees. For independent lenders, it can be 2 percent or higher because of the higher risk involved.
Expect appraisal cost to be anywhere between $1,000 to $10,000. Large-scale commercial projects can even cost between $10,000 to $25,000 for appraisal.
Third-party appraisal is commonly done to analyze and estimate the value of the commercial property. Though it’s not strictly imposed, appraisal is commonly practiced by many private lenders. Third-party appraisal is especially required for federally-backed commercial real estate exceeding a value of $500,000.
Title Insurance Policy
Title search and insurance costs around $2,500 to $15,000. This protects the lender from financial losses in case there are claims against the property’s title.
Debt Service Coverage Ratio
DSCR estimates your companys available cash flow. This is essentially the money that pays for your companys current debt obligations. DSCR is calculated by dividing the annual total debt service with your annual net operating income . The total annual debt service is the amount borrowers use to pay the principal and interest of a commercial mortgage.
Preferred DSCR for Commercial Loans
A good DSCR range for companies is between 1.15-1.35. Most commercial lenders require a DSCR of 1.25 for approval.
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Popular Types Of Commercial Real Estate Loans In 2022
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11 min read. March 3, 2022. by Joe Camberato
What is a commercial real estate loan, and what are the most common types of commercial real estate loans for businesses in 2022? Continue reading to learn more!
Considering buying a commercial property, such as a warehouse or an office space? Maybe youre looking to renovate an existing property or refinance your real estate debt. Whichever it is a commercial real estate loan can be a great solution.
In this article, we will discuss everything that you need to know about commercial real estate financing, including rates, terms and requirements, and we will take a look at the most popular types of commercial real estate loans that you can apply for in 2022.
Commercial Mortgages In Vaughan
Having nearly doubled its population in the last 20 years, Vaughan is one of the fastest growing cities in Canada with an 80.2% growth rate. A common fallacy is that firms in such fast-growing towns have a harder time acquiring a loan to manage their real estate, but thats not the case. Commercial mortgages are perfect for these situations as it offers capital gains, lower interest rates, and makes it easier to plan for other important business matters financially. Plus, the loan can be used for extending current premises, new residential or commercial developments and projects. You do have to be approved first for a mortgage in Vaughan, and thats judged by the firms debt service coverage ratio, financial health, and business situation.
At Smarter loans,
we provide a more natural way for you to get approved for the commercial mortgage based on your needs. Listed below are the most reliable providers in Vaughan looking to help you. You will find me made it easy to compare the companies and their different repayment terms, rates, and structure. When you are ready, click Apply Now for the company you chose to complete an online application. When approved, you will have the loan in a few days. If there are concerns about your financial health or ability to repay the loan, dont give up, some companies are still able to help you.
If you were to Pre-Apply with Smarter Loans, where we will find and put your request in front of the most suitable loan providers in Vaughan.
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Sba 504 Commercial Real Estate Loan Rates
Interest Rates: 3.5% 6%
SBA 504 loans are the most affordable commercial real estate loans, with rates as low as 3.5%. Commercial mortgage rates for this product are favorable because the U.S. Small Business Administration , working through local intermediaries called certified development companies , extends a portion of the loan. With SBA 504 loans, borrowers can finance the purchase, improvement, or renovation of real estate.
A 504 loan can range from $50,000 to $20 million or more and actually comprises three different parts: An SBA-approved CDC extends 40% of the loan, a bank or private lender extends 50%, and the remaining 10% of the loan comes from the borrower as a down payment.
The biggest benefits of SBA 504 loans are the long terms, fixed interest rates, and low down payment. These commercial real estate loan terms go up to 25 years, so you can enjoy low monthly payments and the commercial real estate interest rates here are fixed, so you can lock in a good rate without worrying about future increases. At 10%, the down payment is also very low compared to the equity youll need to provide for other types of commercial real estate loans.
How Do Commercial Real Estate Loans Work
Although commercial real estate loans work similarly to traditional mortgage loans for individuals, there are some key differences that small business owners should understand.
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Commercial Real Estate Loan Interest Rates And Fees
Interest rates on commercial loans are generally higher than on residential loans. Also, commercial real estate loans usually involve fees that add to the overall cost of the loan, including appraisal, legal, loan application, loan origination and/or survey fees.
Some costs must be paid up front before the loan is approved , while others apply annually. For example, a loan may have a one-time loan origination fee of 1%, due at the time of closing, and an annual fee of one-quarter of one percent until the loan is fully paid. A $1 million loan, for example, might require a 1% loan origination fee equal to $10,000 to be paid up front, with a 0.25% fee of $2,500 paid annually .
How To Improve Your Chances Of Getting Approved
Business owners with poor credit or new businesses may face more obstacles when applying for a commercial real estate loan. Some things you can do to help boost your chances of getting improved include:
- Paying off existing debt and taking other steps to improve your credit scores
- Pledging additional collateral if you have it
- Adding an investor or cosigner
- Agreeing to pay a larger down payment and/or higher interest rate
- Selecting a less expensive property
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What Are The Main Types Of Commercial Real Estate Loans
There are 4 main types of commercial real estate loans that businesses can choose from: term loans, SBA loans, bridge loans and business lines of credit. They are typically used when funds are needed quickly, or when there are bridge gaps in long-term financing.These types of commercial real estate loans will vary in rates, terms and funding time.
Depending on the needs of your business and your qualifications, one type may work better than another.
What Are The Benefits Of Hard Money Loans Florida
In many cases, lenders will finance more than one project per borrower. This means that the fact that you are asking for a loan doesnt mean that you will get turned down. In fact, the terms of hard money loans Florida/fix and flip loans Florida are great at helping you to get an amount in place to get your project started.
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The Application Process And Requirements
The exact application process for a commercial loan will differ depending on the type of loan. In general, commercial loans are harder to qualify for and have a longer approval period.
Requirements are more stringent. After all, lenders have more money on the line, and its riskier. If your business or investment strategy fails to generate the income you expect, how will you make your payments?
Lenders will use a lower loan-to-value ratio to determine how much money they can extend to you. With consumer mortgages, some borrowers can qualify for nearly 100% financing. However, with a commercial loan, that number will be around 75% to 80%. They will also consider your DSCR, or debt service coverage ratio, which measures your ability to repay the loan with your existing cash flow.
What Credit Score Is Needed For An Sba Loan
Typically, qualifying for an SBA loan requires a minimum credit score of 660. For SBA 504 loans, the minimum is usually 680.
Another thing to be aware of with SBA loans is that the Small Business Administration is not intended to be a first-choice lender but rather a lender of last resort. Before applying for a loan from the SBA, you should seek financing from other lenders.
Key takeaway: If you are unable to qualify for a bank term loan, you may be able to apply for an SBA loan. Even though it may have a lower down-payment requirement, the SBA is a last-resort lender.
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Are Dscr Loans Good
Whether or not its a good idea to use a commercial DSCR loan for a residential 1-4 unit investment property ultimately depends on the borrower. If youre looking to expand your commercial real estate portfolio, then DSCR loans might be something to consider. This is especially true if you are a self-employed borrower or foreign investorsor anyone else who cannot qualify based on paystubs or W2s.
There are many benefits of DSCR loans for real estate investors, such as:
- No limit on amount of properties
- Typically quicker closing times
- No need to verify income to qualify
- As little as 20% on down payments
- Can be used for both long-term and short-term rental properties
- Options for interest-only loans
- Large loan amountsup to $5,000,000
- Close in the name of your LLC
These are all important factors to take into consideration if youre interested in using a commercial DSCR real estate loan.
And if you need the help getting started, speak with one of our knowledgeable loan specialists.
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