If you’re a business owner looking to renovate or expand, you may need a commercial real estate loan. These loans are very different from other business loans, functioning more like a residential mortgage. There are a variety of options for commercial real estate loans in Denver, which is why finding the best one to fit you and your business needs is important.
What Is a Commercial Real Estate Loan?
Commercial real estate loans allow businesses to purchase and renovate property and finance through a loan. Most commercial real estate loans require the property to be owner-occupied, meaning the business must physically reside 51% within the building. These loans can be used by a range of businesses to finance types of properties from office buildings, apartment buildings, hotels, restaurants, retail centers, and industrial buildings. Depending on the type of property being financed and the lender used, terms and rates can vary greatly. Here are five types of commercial real estate loans explained:
Traditional Commercial Mortgage
Most traditional commercial mortgages spawn from banks as lender. These loans can be used on a variety of properties which, in most cases, must be owner-occupied. Some banks make fully amortized loans with long terms up to 30 years and a loan-to-value ratio near 85%, while others may have interest-only loans with slightly shorter terms and lower loan-to-value ratios. Generally speaking, it’s more difficult to qualify for traditional mortgages than other types of commercial real estate loans. Banks want to see a borrower with a strong business and low debt service coverage ratio as well as good personal credit.
SBA 7(a) Loan
The 7(a)Loan, or the Small Business Administration’s flagship loan, can be used to help purchase buildings or land, renovate existing property, or construct new property. Provided the property will be owner-occupied, the borrower can get up to $5 million through an SBA-affiliated lender. The terms and conditions, just like the guaranty percentage and loan amount, vary on the type of loan. The maximum SBA guarantee percentage is 85% for loans up to $150,000 and 75% for loans greater. These loans are fully amortized and repayment plans can extend to 25 years. Approval for a loan is dependent on authorization by the Small Business Administration based on credit business eligibility.
SBA 504 Loan/CDC Loan
The SBA offers loans specifically for owner-occupied real estate or long-term machinery purchases. These loans, referred to as 504 Loans, are comprised of two different loans. First, one from a Certified Development Company (CDC) for up to 40% of the loan amount. Second, a bank or participating lender loan for 50% or more of the loan amount. The borrower must typically contribute 10-20% of the loan costs. 504 Loans can be ideal for a well-established business with good standing looking for a long-term commercial loan without a maximum limit. Approval is again dependent on the SBA, credit, business standing, and expansion/purchase plans.
Commercial Bridge Loan
Just as implied by the name, bridge loans are used to “bridge the gap” until long-term financing is possible for a commercial property. Most bridge loans come with short terms, ranging from six months to two years, and are generally not amortized. Bridge loans can be used for up to 90% or a purchase price and are best for short-term owner-occupied financing. Another advantage for borrowers is the low down payment requirement, which is usually between 10% and 20%. Bridge loans are typically closed more quickly than traditional mortgage loans and are easier to qualify for depending on the lender you choose.
Hard Money Loans
Hard money loans are similar to bridge loans in that they typically have short terms and are quickly facilitated. Qualifying with a lender is easier because most hard money loans are made by private companies. It’s important to find an unbiased and productive financial solution lender who understands Denver commercial real estate market. Hard money loans are ideal for business owners looking to renovate or expand who may not have the best credit and don’t qualify for a traditional commercial mortgage.
Finding the right lender for your commercial real estate mortgage is an important move for your business. Make sure your funds are coming from a trusted and fair source. If you are in need of a flexible, collateral accepting, and reliable commercial lending company in Denver, look to Bold Funding Group for the best service for you and your business. Call 303-376-6232 today to begin your application process for your customized commercial real estate loan!