Commercial Real Estate Loans
If your business is looking to buy, refinance or make improvements to commercial real estate, you’ll likely need to get a commercial real estate loan. These loans are very different from other types of small business loans, functioning more similarly to a residential mortgage. Most commercial real estate loans require that the property be owner-occupied, meaning that the business needs to physically reside in at least 51% of the building.
Traditional Commercial Mortgage
Traditional commercial real estate loans are used for a variety of properties, including office buildings, industrial buildings, multi-family units and retail centers. In most cases, the property will need to be owner-occupied. Like a residential mortgage, the commercial loan will be secured by the property being purchased. Beyond that, terms vary widely depending on the type of purchase and the specific needs of your business.
SBA 7(a) Loans
The Small Business Administration’s (SBA) flagship loan, the 7(a) loan, can be used to purchase land or buildings, construct new property, or renovate existing property, provided the real estate will be owner-occupied. Interest rates can be fixed, variable or a combination of the two. Repayment terms for 7(a) loans used for real estate can go up to 25 years. These loans are fully amortized, meaning each monthly payment will be the same until the loan is paid off.
SBA 504 Loans
Beyond the 7(a) program, the SBA offers loans specifically for owner-occupied real estate or long-term equipment purchases. These loans, called 504 loans, are actually composed of two different loans: one from a Certified Development Company (CDC) for up to 40% of the loan amount and one from VisionBank for 50% or more of the loan amount. You, as a borrower, will be responsible for putting at least 10% as a down payment. Interest rates on the CDC loans are based on U.S. Treasury rates and are fixed once you get the loan. Like the 7(a) loans, these loans are fully amortized.
Investment Property Loans
Investment property loans finance rehabilitation projects in which properties are fixed up and then either resold (“fix-and-flip” deals) or rented out. The loans financing these projects are usually short-term, and they’re sometimes called bridge loans. Investment properties can be residential or commercial, but they typically can’t be the investor’s primary residence.