Everything You Need to Know About Commercial Real Estate Financing
Considering financing for your commercial real estate investment? Whether you’re seeking an owner-occupied property, multifamily rental units or a commercial building to lease to other businesses, here are all the key facts you need to know about financing your next business venture.
Typically, there are three basic strategies when it comes to investing in commercial property. You can choose to invest in buying retail, office or industrial property, choose to develop a new site or manage a commercial building.
Compare your financing options to find the best solution for your particular situation. Depending on your financial situation, commercial real estate option and other factors, some loans may have more advantages than others. A conventional loan is the most common option available for most commercial needs. These loans have reasonable interest rates and typically have longer terms.
Unlike a traditional mortgage, your commercial mortgage can be either fully amortized or come with a balloon payment. A balloon payment requires you to pay the minimum monthly payments for a short term, typically a few years, then you’ll be required to pay off the rest of the balance in full. Amortized loans operate just like a traditional mortgage, where all your minimum monthly payments will pay off the entire loan amount and interest.
The Small Business Administration, or SBA, has commercial property loans available to secure property and make necessary renovations. However, they’re only available for small businesses and require additional paperwork to apply. An SBA loan comes with competitive rates and terms, so it can be worthwhile if you qualify.
Some businesses choose to use a line of credit to secure their commercial property. Lines of credit are short-term loans that are highly flexible. This is a great option if you’re considering a property that requires renovations before being approved for a loan. Typically, you’ll need to pay off your line of credit in a few years. A common strategy is to use a line of credit to purchase property and make renovations, then refinance with a traditional commercial mortgage.
Compare each of these commercial real estate financing options to find the best solution for your business plan. Depending on the type of property and any work that needs to be done, an SBA loan or line of credit may be the best option for your business. However, for a long-term, low-interest loan to secure a valuable property for your business or rental strategy, a conventional loan may be the best solution.
