Real estate financing is an especially complicated world, even for investment and financing professionals. There are literally dozens of products designed to help investors purchase commercial real estate, in addition to programs aimed at companies buying operational facilities and individuals seeking out personal property for various reasons. It’s no wonder so many people wind up confused when they first look for a loan. When your small company is buying a building, it will operate out of, there are a few relatively simple options that will suit you best, and you do not need to worry about understanding the other choices.
This loan type is simple in structure, but approval processes for commercial mortgage programs can still be complicated. It resembles a home mortgage, with the key differences being that the version aimed at commercial real estate financing has higher interest rates, lower LTVs, and application requirements that include a complete business plan as well as the expected financial screening. Among the additional requirements is an operating history with at least two years of consistent profitability leading up to the present day. Not many startups or small businesses can meet those criteria when they need the loans most.
When it comes to the costs and the month-to-month payment requirements, SBA loans are very similar to commercial mortgages. The biggest difference is that the SBA loan package is partially guaranteed by the government to mitigate lender risk. It is also more flexible about using an owner’s personal credit and income to qualify for the loan, whereas commercial mortgages tend to require the company to be able to stand on its own. Buying commercial real estate with SBA loans may require you to meet additional criteria like enriching the local economy through job growth or foregoing early repayment for a time.
Bridge Loans for Property Purchases
If you need fast approval and low monthly payments so you can rehabilitate a property before moving into it, a short-term bridge loan based on the new asset’s value could buy you the time and space you need to make improvements. That allows you to finance the commercial real estate purchase for the improved value when you apply for a commercial mortgage, which could be the best option in the end if you are doing something like remodeling and reopening a hotel. Keep these options in mind when you consider your next real estate purchase.