Commercial Real Estate Financing
A commercial property, is a kind of real estate that is used only for business purposes. Commercial real estate loans allow businesses purchase or renovate property and finance this through a loan. Another term for this is commercial mortgages, which basically means use of funds to finance commercial real estate for mixed-use buildings, retail centers, and office buildings.
Investment in Commercial real estate (CRE) offers numerous advantages over residential investments, and obviously the best reason to invest is the earning potential. Commercial properties are a smart way to generate a steady passive income stream. The value of a commercial property can be affected more by economic growth and production which have a direct impact on rents, demand and construction. This basically means the price of a small commercial property in most cases might be higher than a residential property.
Benefits Of Investment In Commercial Real Estate Include:
- Higher Earning Potential
- Professional Tenants
- Longer Lease Terms
- Triple Net Leases
There are different loan options available to you when you are looking to finance commercial real estate along with specific criteria that must be met. Online independent lenders, large national banks, investor-only lenders, insurance companies, pension funds, private investors and the U.S. Small Business Administration's 504 Loan program, provide funding for commercial real estate investments. Understanding and choosing the right kind of loan is critical because it can impact the bottom line.
Types Of Loans Available For Commercial Property Investment
A complete list is provided on the left side of this page, broadly commercial real estate loans fall into five primary types.
- SBA 7(a) loans
- CDC/SBA 504 loans
- Traditional commercial mortgages
- Bridge loans
- Hard money loans.
Interest rates on commercial real estate loans are generally on the higher side and fluctuate regularly. Typically they range from 5% to 15% on commercial mortgages.
Commercial Loan Terms
Commercial real estate loan terms typically range from 5 to 20 years. Having said that, SBA 7(a) loans have a maximum repayment term of 25 years for commercial real estate, CDC/504 loans have a maximum term of 20 years.
This really depends on the type of loan you decide to go for, down payments on commercial properties can range from 10% to 50% and even more.