Commercial Real Estate Financing Basics

Investing in commercial real estate is an exciting business proposition. There are many ways to leverage your commercial investment to secure a profit when working with real estate. Here are some financing basics to get you started with your new investment strategy.

First, determine what commercial loans are required to secure your ideal real estate. Many investors still choose to use financing to maximize their reach and minimize their risk. Your real estate qualifies for a commercial loan only if it’s specifically used to produce income.

There are a few basic commercial real estate loans to choose from. SBA 504 loans are a natural start for beginning investors. This Small Business Administration loan is specialized for investing in commercial properties. You can easily gain access to properties valued over one million dollars with this loan. However, the entire loan must be used to purchase real estate, rather than payroll, renovations or other expenses.

A more flexible small business alternative is an SBA 7a loan. The SBA 7a is a more general commercial loan that can be used for real estate, operating expenses and payroll. It’s useful if you need to make major renovations or are looking to start a business in your commercial property. Of course, the general nature of this loan means that you won’t be able to access as much as a 504 loan.

For companies that no longer qualify for SBA loans, there are traditional bank loans. These loans require higher credit scores, typically 660 or more, but offer competitive terms. You’ll need to provide a down payment and commercial loans generally come with a prepayment penalty.

For a more flexible option, consider hard money loans. Hard money loans are short-term alternatives that typically don’t require a credit check. However, these loans typically come with higher interest rates. Hard money loans can be used to fund essential renovations that can improve the value of your commercial property. Consider using a hard money loan as a bridge loan. Once you’ve purchased the property and made the necessary repairs, you can refinance with a traditional loan or commercial mortgage that offers lower interest rates.

Now that you know the basics of commercial real estate investing, take some time to review each option. A local bank or financial institution can provide you with more information, or consider choosing an online investment company for greater flexibility and streamlined service. Launch your latest investment strategy with these flexible and efficient financing options.

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