Commercial property loans are for the acquisition or rehabilitation of commercial premises known as owner-occupied commercial property. At least 51% of the property is always inhabited by the company. Office towers, shopping parks, mixed-use buildings, manufacturing warehouses, apartment complexes, car wash that Walt and Skyler purchased at Breaking Bad—are all commercial properties (though that last one was, ahem, a cash deal requiring no commercial loan; not the best example).
Any land that is built to make profits is
commercial real estate. It is not the same as a home, and commercial real
estate mortgages are separate from residential mortgages.
Let’s talk about the basic types of commercial
loans available for real estate investors.
Conventional Commercial Mortgage
Loans
Unlike some of the other two forms of loans to be
discussed here, conventional commercial mortgages really aren't guaranteed by
the federal government—the loans made solely between the borrower and the
lender. As such, these mortgages do not have a mandated cap; it is up to the
lender to determine the full value of the loan.
Usually, this maximum balance is determined to be
from 65 to 85 per cent of the loan-to-value real estate (LTV) ratio, with just
a down payment of 15 to 35 per cent of the fair market value of the land. The
interest rate on conventional business loans ranges from 4.75 per cent to 6.75
per cent, and annual instalments are amortized over the lifetime of the loan.
SBA 7(a) Loans
If you're turned down for a conventional
commercial mortgage, a government-backed SBA (Small Business Administration)
loan will be a feasible alternative—in reality, refusing a regular bank loan is
one of the perquisites for an SBA loan. The interest rates for SBA loans are relatively
lower, as are the criteria for credit ratings, but the qualifying standards are
tighter.
The 7(a) is the most popular SBA loan and has the
largest variety of applications. The bulk of SBA 7(a) loans are issued to
existing companies to build up their working resources, but they can also be
used by younger firms to buy commercial real estate. The overall value on this
form of loan is as high as 85 percent to 90 percent of the selling price, up to
5 million, with a down payment equal to 10 percent to 15 percent. Interest
rates vary from 5 percent to 8.5 percent.
Hard Money Loans
Hard money commercial loans are provided by
institutional investors or private banking agencies. Loans are solely secured
by the valuation of the property against which the capital is borrowed. Hard
money loans are typically given to businesses with less than stellar credit –
who may find it impossible to secure a loan from a financial institution, a
credit union, or other conventional lenders – or to businesses that may face financial
difficulty.
Wrapping Up
In this article, we talked about the types of
commercial loans for real estate investors.
In case you’re looking for commercial loans San Antonio, please get in touch with Capital Concepts!
