The Meaning and Importance of Commercial Real Estate Loans

Commercial real estate loans involve offering mortgage loans to organizations to purchase properties for business purposes. Significant examples are office buildings, housing, warehouse, storage, manufacturing facilities, restaurants, raw land, and recreation parks.

Why are commercial real estate loans important?

Commercial real estate loans are essential financing for most businesses to operate. They are also usually much larger than typical residential real estate l0ans as they offer most of the income earned for banks and other lenders.

Unlike residential real estate lending, commercial real estate deals with a wider variety of lending types and is usually offered by several kinds of lenders. Many companies seek financing to acquire rental property that may need real estate lending to fund a new development project.

Various Types of commercial real estate loans

There are five common types of commercial real estate loans. However, several specific financial structures may also be used outside these categories. Here are some of the various types:

1.      Hard money

Private lending companies or private investors can provide what are known as hard money loans. They are offered to companies with less than stellar credit, usually those that may find it hard to get a loan from a credit union, a commercial bank, or other more traditional lenders. In most cases, hard money lending is between a year or a few months.

2.    Seller-financed

With this type of lending, a business looking to purchase commercial property can buy it directly from the seller. Usually, this is preferred over traditional bank financing because payment terms are more flexible for both parties. In some cases, the buyer may gain a reduced interest rate.

3.    Bridge Loans

Bridge lending is one of the best types of short-term real estate loans, usually extending for a period of six to twenty-four months. Bridge lending is used to finance a loan until a business can secure a more permanent loan. These types of loans are usually contingent on the sale of a property currently owned by the business and help to bridge the gap between that sale and the purchase of the new property. It has an added benefit of helping to build credit during the interim period for the business rather than losing the time and money while waiting for the sale to go through.

4.    SBA Lending

This type of lending focuses on lenders offering loans to small business enterprises. They require adequate collateral for security on all loans and a personal guarantee from every owner of one-fifth or more of the enterprise. Aside from property purchase, these loans can be used for debt restructuring, purchasing inventory, and more.

5.    Typical commercial real estate lending

Typical commercial real estate loans are very similar to residential lending. In this type of loan structure, the property purchased acts as the loan collateral. Companies can also use other things like equipment as collateral to help secure the loan.

Alternative Sources for Commercial Real Estate Lending

There are alternative commercial lending sources aside from commercial banks, private investors, and the like. Some of these include:

  • Crowdfunding:

    Online platforms connect private investors with certain companies searching for funds for real estate development.

  • Insurance companies:

    Life insurance companies look out for low-risk investments that provide better returns over risk-free investments.

At Northeastern Group, we work with businesses in New York, New Jersey, Connecticut, Pennsylvania, Georgia, and Florida to provide commercial real estate lending. Contact us today to get started on your commercial loan. We look forward to working with you.

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