Comparing Commercial Real Estate Loan Options

Your business needs real estate to provide office space for your employees, retail space for your customers or warehouse space to accommodate all your inventory. If you’re looking to update your building or secure your first commercial real estate, explore these common loan options.

Commercial Mortgages

A commercial mortgage is one of the most straightforward options available for your real estate. Similar to a residential mortgage, commercial alternatives offer long-term financing at a set interest rate. You’ll need to put as much as 35% down on a commercial mortgage, and your lender may require a higher credit score than residential loans.

Be sure to check the details of your mortgage. Some commercial options are amortized like a traditional mortgage, but others aren’t and require a balloon payment at the end of the payment schedule.

Bridge Loans

Need cash for a renovation or to secure a property before your mortgage is processed? These unique commercial real estate are exactly what bridge loans are designed for. A bridge loan is typically backed by an asset, sometimes equipment and inventory, other times a residential property. They are short-term loans with higher interest rates, but the funds are dispersed very quickly and typically in cash. Bridge loans give you the flexibility you need to make a quick sale or to purchase a property with a cash offer that may not initially qualify for a mortgage.

SBA Loans for Real Estate

Neither of these options may be appropriate for small business owners. If you’re just getting started, you may not have the capital or credit score required for a commercial mortgage. You may also not have a business plan that allows for the short term length of a bridge loan. The Small Business Administration has two loan programs specifically for small business owners.

The SBA 504 loans are specialized for purchasing business real estate or equipment. The application process requires more paperwork than a traditional commercial loan, but has different requirements for approval and may be appropriate for your situation.

A more flexible option for small business owners is the 7(a) loan. This loan can still be used to secure commercial real estate, but it can also be used for other business expenses that may arise. Apply for an SBA 7(a) loan to purchase equipment, real estate and inventory. Make payroll, invest in marketing and use your financing for any other business expense that you see fit.