Five Types of Commercial Real Estate Loans: Which Do You Need?

Before you start commercial real estate loan shopping, it’s important to know which commercial loans are right for your business. Commercial real estate loans are commercial mortgages that need to be repaid, like any other mortgage. These commercial property loans can have interest rates and terms that vary depending on the commercial property’s purpose or location. There are five commercial real estate loans that we will discuss in this blog post:

– Commercial mortgage loan

– Construction loan

– Bridge loan

– Hard money commercial mortgage loans

– Business cash-out refinance

Commercial mortgage loan

A commercial mortgage loan is the most common commercial real estate loan. It’s also known as permanent financing because it offers a long-term solution for your commercial property needs. This type of commercial real estate loan has standard terms and conditions that are well-known in the industry, which makes it an attractive option for larger loans (like those over $500k.)

You can get a commercial mortgage from many different lenders depending on whether you’re purchasing or refinancing; however, getting this commercial real estate loan usually requires some sort of equity contribution from the business owner(s). Additionally, there will be fees associated with processing and closing costs to factor into your overall borrowing amount.

Construction Loan

A commercial construction loan is a commercial mortgage loan that’s used to finance the building of a commercial property. This type of commercial real estate lending usually requires you to draw funds from your permanent commercial financing (like a commercial mortgage) during various stages in the development process until it’s fully built out and ready for occupancy.

Most commercial construction loans have an interest-only period, which means while your project is under construction there will only be principal payments due on this type of commercial real estate loan. Once your project has been completed or “taken to completion,” then monthly principal and interest payments are required along with additional fees associated with closing costs such as appraisal fees, title insurance premiums, inspections charges, and more.

Bridge loan

A commercial bridge loan is a short-term commercial real estate loan that’s designed to give you some time until you can get traditional financing.

In most cases, the commercial bridge loans business owners take have significantly higher interest rates and fees than what they would pay for a commercial mortgage if their permanent financing falls through. This makes it an expensive option in many ways; however, it gets better – your lender will probably charge additional origination and closing costs on top of the high rate so be ready to spend even more money.

Hard money commercial mortgage loans

A commercial hard money loan is a commercial real estate lending option for business owners who may not qualify for traditional financing.

This commercial real estate loan usually comes with higher interest rates and fees because it’s considered high risk due to the lack of assets, low income, or negative credit history on the part of the borrower(s). Additionally, there are additional costs that can be associated with these loans such as: appraisal charges, origination fees (between 0%-15%), processing/underwriting fees (up to $500), document preparation fee ($150+ per page) + delivery via FedEx; lender credits (discount points); and more! This type of commercial mortgage requires little-to-no documentation your company – which makes it easier to get approved for commercial hard money loans.

The business owner will be responsible for all costs associated with the commercial real estate loan such as title insurance, recording fees, and any other official charges that are incurred during closing.

Business cash-out refinance commercial

A commercial cash-out refinance is when a business owner uses the equity from their current commercial property to obtain another commercial loan. For example, if you own a commercial building and have $300k in equity available that can be used as collateral for additional borrowing power, you might choose to apply for this type of commercial financing.

Ajitesh Kumar
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Ajitesh Kumar

I have been recently working in the area of Data analytics including Data Science and Machine Learning / Deep Learning. I am also passionate about different technologies including programming languages such as Java/JEE, Javascript, Python, R, Julia, etc, and technologies such as Blockchain, mobile computing, cloud-native technologies, application security, cloud computing platforms, big data, etc. For latest updates and blogs, follow us on Twitter. I would love to connect with you on Linkedin. Check out my latest book titled as First Principles Thinking: Building winning products using first principles thinking
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