What You Need To Know About the Most Common Types of Commercial Real Estate Loans
When you’re thinking of buying commercial real estate, you need to find a way to pay for the property you want to invest in. While it’s possible to use your savings, most buyers prefer to finance at least a portion of the cost of the building. Luckily, there are many different types of loans available to help you do just that. Here are a few of the most common options to consider.
Hard Money Loans
Hard money loans are loans issued by private investors. These loans are secured by the property itself meaning the lender will be able to take possession of the property if you fail to repay the loan in full. Since you’re able to use the property as collateral, lenders are more willing to give you the money you need even if you have a low credit score. That said, hard money loans often have short repayment periods and can have high interest rates. If you choose to go this route, shop around and get quotes from several lenders before accepting the money.
Construction Loans
It’s rare to find the perfect property right off the bat. Sometimes, you have to build it yourself and construction loans will help you pay for the construction in the first place. These loans can be issued by standard banks, but you’ll need to show a clear plan for the building before you can qualify for the loan. Banks also prefer businesses to have a good history of profits and high business credit scores. If you’re new to business, getting qualified may be tough.
Traditional Commercial Mortgages
If you’ve ever bought a house, you likely financed the purchase with a mortgage. Believe it or not, you can do the same thing for a commercial property. These loans are issued by banks and credit unions and spread the payments over many years. This makes it easier for you to get into the right building without having to pay tons of money upfront. Most commercial mortgages offer relatively low interest rates and give you years to pay off the principal, putting less strain on your business. Keep in mind that the payments aren’t flexible. You’ll have to come up with the money even when business is slow or you could end up losing the building entirely. If you choose to use a mortgage, get quotes from different lenders and compare the interest rates and terms in detail.
These are just a few ways to finance a commercial real estate purchase. Look at your budget, your profit history, and your debt tolerance to figure out which loan will work best for you.
