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6 Types of Commercial Real Estate Loans

Posted by Carolina Trust Federal Credit Union on May 19, 2022 12:15:00 PM

Commercial real estate loans provide entrepreneurs, investors, and other industry leaders with revenue to improve profitability and advance business goals. But selecting the best loan product can prove challenging. Lenders offer commercial real estate loans with varying interest rates, repayment terms, and qualification thresholds. If you require an influx of revenue to purchase or refinance a property, make renovations, or expand your business it’s crucial to find the best financing solution for your needs.

What are Commercial Real Estate Loans?

Commercial real estate loans are a type of borrowing secured by a property or other tangible assets. Loan products typically support commercial property purchases, renovation of already owned facilities, and refinance debt to save money through lower interest rates or more favorable terms. Essentially, commercial real estate loans fall into three basic categories — investment, development, and business. With that in mind, the following rank among the more prevalent commercial real estate loans offered.

1. Permanent Loans

A permanent loan involves the first mortgage taken for a commercial property. It typically includes repayment terms of five or more years, with the majority spreading installments over 25 years or longer. Lenders may prefer repayment of 20 years or less when used to purchase aging structures that show signs of disrepair. The benefit of permanent commercial real estate loans stems from their traditionally low interest rates. Most are considered garden variety products that present minimal risk for lenders.

2. Business Term Loans

Business term loans provide businesses with a lump sum that is repaid based on an agreed-upon schedule. Sometimes thought of as small business loans, companies generally leverage the money to make renovations, purchase necessary equipment, or finance specific investments. Business term loans usually enjoy the consistency of fixed rates and favorable repayment schedules. If you are looking for a business term loan to help your business grow, you can count on Carolina Trust. Our business term loans are available for 1 – 5-year terms with an amortization schedule generally 15-20 years.

3. Bridge Loans

A bridge loan tends to be true to its title. These short-term commercial real estate loans are designed to help companies bridge a financial gap from their current situation to a place of stability. Repayment terms may run from six months to as long as three years and support an organization in meeting its obligations. Bridge loans provide revenue as something of a placeholder, and borrowers pay higher interest rates than long-term options. Like other commercial real estate loans, this product requires collateral. 

To discover how commercial real estate loans can help your business, download our free guide:Commercial Real Estate Loans: How to Get The Money Your Business Needs

4. Business Lines of Credit

A small business line of credit functions a lot like a company credit card. These loan products provide an unsecured line of credit for businesses to access when necessary. Often used to address sometimes unanticipated expenses that arise, interest accumulates when funds are drawn down. Borrowers make at least monthly minimum payments, and the availability of credit is based on how much has been leveraged against the account’s limit. The primary reason organizations apply for a business line of credit revolves around short-term funding needs. If you are looking for a business line of credit, you can count on Carolina Trust. We offer business lines of credit available for a 1 year term.

5. Hard Money Loans

Sometimes thought of as a type of bridge loan, these products are secured by real property and often constitute a last-resort effort on the part of borrowers. Lending institutions rarely, if ever, provide hard money loans that charge excessively high interest rates and expect repayment between three and 36 months.

People with deficient creditworthiness may approach companies or private parties to float short-term loans. And borrowers usually do not plan to own a commercial property for very long. Investors who wish to buy and flip commercial properties make use of this sometimes high-risk borrowing pathway.

6. Owner Financing

Owner financing provides commercial real estate investors with an opportunity to purchase properties regardless of creditworthiness. The process involves approaching a property owner and negotiating purchase terms. These usually entail an initial down payment and repayment terms that involve a price far higher than the current value. That’s largely because most commercial property owners are not necessarily able to charge interest outright. But having a buyer pay more can offset the inconvenience of not getting a lump sum upfront.

This process frequently comes into play when lenders won’t approve commercial real estate loans due to bankruptcy, poor creditworthiness, or lack of income. Building owners often set terms that include a process that mirrors foreclosure if a borrower falls behind on payments. Those are reasons why business professionals would be wise to secure a commercial real estate loan from an established lender and pay off the owner-financed note as soon as possible.

How to Find the Right Commercial Real Estate Loan Lender

It’s essential to conduct thorough due diligence before applying for commercial real estate loans. Business professionals must research trusted local lenders to find one that offers financing solutions and loan requirements that best fits their needs and unique situation.

At Carolina Trust Federal Credit Union, we know that sometimes, you need a little extra money to maintain and grow your business, and we get it. Whatever it may be, don’t worry— we’ve got a loan for that.

Topics: Commercial Lending