Here are the most common types of financing options when investing in commercial real estate.
This type of loan is probably the most common one and is very similar to residential mortgage loans, also called a traditional loan. The terms for a conventional loan are usually the longest and the interest rates are 4 - 7%. The repayment schedule is typically between 5 to 10-years when the loan matures. The amortization schedule is generally at 30 years.
The U.S. Small Business Administration (SBA) offers two types of loans for commercial real estate investors – SBA 7(a) loans and SBA 504 loans. What is unique about the SBA loan is that the SBA guarantees a repayment of the portion of the loan making it favorable to institutional lenders who in turn will provide some of the lowest interest rates.
One of the most popular SBA lending programs is the SBA 7(a) loan. The SBA loan can be used for "owner-occupied" properties (the borrow's business needs to occupy at least 51% of the total square footage), debt refinancing, working capital, etc.
Hard Money Loan
This is an unconventional private loan and will carry higher interest rates and have a shorter term. This is an option for when there are no other financing alternatives available. The private lenders know that they can demand the higher interest rates here. Most folks utilizing this type of loan know that they are in a unique situation and will eventually refinance to a traditional loan or wholesale/flip the property.
Exactly as it sounds. This loan helps to bridge the gap between a conventional loan and perhaps a down payment gap in order to close the deal. These loans are another example of a private loan so expect higher interest rates and a short duration. These types of loans are used for special circumstances.
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