A commercial real estate loan is typically used to purchase real estate for business purposes. The loan is a product from a bank or other financial institution. Commercial real estate financing offers many options, primarily when working with a highly skilled commercial real estate broker with your best interest in mind. While multiple commercial real estate loans are available, here’s a look at five of the most common.
Commercial Real Estate Acquisition Loans
Acquisition loans are typically used to purchase commercial property. Depending on your business type, you may be required to occupy a certain percentage of the commercial property with your business. These loans can sometimes be used for commercial renovations as well. Lenders typically consider your business’s debt service coverage ratio when considering these types of commercial real estate financing, and they look for a ratio of 1.25 or greater.
Bridge loans are a popular type of commercial real estate financing most often used to bridge funding gaps in commercial investing opportunities. Bridge loans are short-term financing options that usually require collateral. These fast funding opportunities fill short-term needs but may come at higher interest rates, a sometimes welcome trade to get the job done.
Distressed refinances can be problematic in the real estate financing industry because of their risky nature. They can often be the road to riches or a hidden trap. The outcome depends on many factors, environmental and otherwise. The distressed asset community often sees discounts exceeding 50 percent which can be pretty tempting for the commercial investor. This complex venture can be highly lucrative, but it is not without pitfalls.
Commercial Construction Loan
A commercial construction loan is a type of commercial real estate financing that helps cover the cost of building or renovating structures. While purchasing materials and paying trade workers, you can manage your balance sheet by making interest-only payments on the loan. In most cases, you’ll create a draw schedule to keep things on track during construction. However, costs increase considerably once construction is complete, so a good exit strategy is essential.
Commercial Balance Sheet Financing
Commercial balance sheet financing is a commercial loan where the lender agrees to keep the loan on their books until it is paid. It is common to sell debt, genuine estate debt. Selling a debt before it is paid ensures the lender recoups their investment. With balance sheet financing, that doesn’t happen. The lender keeps the debt for the loan’s life cycle until it is paid in full.
The Right Type of Commercial Real Estate Financing
Commercial real estate financing is a business and your business is too important to leave to chance. There are many types of commercial real estate financing options, and you want to work with an experienced broker who is skilled in all market conditions. The right commercial real estate broker works with many lenders who can help you get the financing you need for your business in any market.