Commercial Real Estate Loans: Types and Benefits

Written By Alla Levin
February 27, 2023

If you want to finance a commercial real estate purchase, do some repairs to raise the value of your property, or streamline certain business operations, you’ll need to know about the different types of loans for short term rentals

Some popular commercial loans include SBA 504/7A, bridge, and hard money loans. That being said, each type of loan has its own advantages and disadvantages, so be sure to do your research before looking for a lender. So, without any further ado, let’s explore and find out more about how these loans can help you achieve your goals.

Commercial Real Estate Loans: SBA 504 Loan 

The SBA 504 loans are a great way to obtain the funds you require for your business. Lenders offer million dollars financing options, perfect for larger investments such as real estate or procuring or replacing business-related amenities. 

With this type of loan, you won’t have to worry about squeezing repayments into an unrealistic budget either. Repayment schedules usually last up to 10-20 years, depending on the type of asset purchased and other factors. Interest rates may also be lower than with different types of loans, giving you much-needed breathing room when it comes to investing in essential equipment for your company or expanding your business operations.

Commercial Construction LoanCommercial Construction Loan

This type of loan is perfect for commercial-related building projects as their terms are flexible, and lenders offer solid terms. If you’re wondering how commercial construction loans work and whether they are the right choice for you, you should know that funds for these types of loans are distributed in draws that correspond to construction milestones. In some instances, inspections are required prior to the release of funds to ensure the loan is utilized in accordance with the agreement.

You can expect the interest rates to range anywhere between 4% and 10%, but at the end of the day, it might all balance out if your expansion brings significant ROI your way.

SBA 7(a)

The SBA 7(a) loan is the most popular type of Small Business Administration loan and its purpose is to help businesses of all sizes reach their goals. This unique loan program is incredibly flexible as borrowers can use it for a variety of investment goals, such as starting a new business, increasing the working capital of an existing one, or buying commercial real estate. 

Approval terms are also fairly lenient in comparison to traditional bank loans, making SBA 7(a) loans an attractive option. On top of that, since they are government-backed, these loans often feature favorable interest rates and longer repayment terms. If you’re looking for a financial boost to get your business up and running or ensure that it continues onward successfully, then considering a 7(a) loan may be the best choice for you.

Bridge LoansSBA 504 Loan 

A bridge loan is a useful option that can really help when you’re looking to purchase real estate fast. It offers a nice safety net by providing the financing needed so that you don’t have to wait too long to close a deal. This type of loan is typically used by property developers and people who are waiting on their existing loan applications to get approved. 

It’s an ideal solution for people who need immediate access to cash but cannot wait months or even years for all the paperwork and legal documents related to longer-term funding options. The term of this loan is shorter than traditional mortgages, so you’ll need to come up with a plan for refinancing it upon maturity, making it much more suitable for those who already have a clear understanding of their future financial goals.

Hard Money Loans

Hard money loans are usually the go-to choice for real estate investors looking to rehab a property and make decent profits quickly. A hard money loan is based on the value of the property being purchased, not the borrower’s creditworthiness, so these types of loans are often easier to secure than traditional bank financing. 

The downside is that hard money loans tend to come with higher interest rates, fees, and points than most traditional loans. However, when you’re in a rush and need quick access to fast cash with no questions asked, hard money loans are generally easier to secure than other types of financing.

Commercial real estate loans: bottom line

In conclusion, business owners have a variety of financing options available to them, including SBA 504 loans, SBA 7(a) loans, commercial construction loans, bridge loans, and hard money loans. Each of these loan types has its own advantages and disadvantages, which should be carefully considered before making a decision.

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