Commercial Real Estate Loans for Small Business

Commercial real estate (CRE) is income-producing property used only for business purposes. Commercial real estate can include malls, shopping centers, office buildings and hotels. If you run your small business in an office or retail store, you’re working in a commercial real estate space.

Financing options for a small business owner interested in purchasing commercial real estate are usually mortgages secured by liens on the property. A lien is a guarantee that the borrower will repay the CRE loan. In other words, if the owner can’t pay the debt, the lender might be able to seize the property secured by a lien.

Have you considered purchasing the building where you operate? If you already own, is it time for a money saving refinance? Here’s what you need to know.

Traditional Commercial Mortgage

Typically, traditional commercial mortgages have a term between 5 – 20 years with payments are fully amortized over the life of the loan. To learn more about fully amortized loans, visit Investopedia.

Traditional commercial mortgages take between 30 – 45 days for approval and funding and are issued by traditional banks and lending institutions.

Pros: There is no maximum loan amount with a traditional commercial mortgage. This is because these mortgages aren’t backed by the federal government and overall loan amounts are up to individual lenders.

Cons: The qualifications for a traditional commercial mortgage are a little tougher than with a government-backed alternative. This is because the lender assumes the full risk.

Commercial Bridge Loan

A commercial bridge loan is a short-term real estate loan used to buy an owner-occupied commercial property before refinancing at a later date to a long-term mortgage. Bridge loans are used to “bridge” borrower gaps between property transactions. Issued by traditional banks and lending institutions, commercial bridge loans help borrowers compete with all-cash buyers and qualifications are less strict compared to longer-term options.

Pros: Because of their short term nature, bridge loans usually don’t have any prepayment penalties.

Cons: Commercial bridge loans usually feature higher interest rates, fees and penalties. They might require a large balloon payment at the end of the term.

Commercial Hard Money Loan

With a commercial hard money loan, underwriting decisions are based on the borrower's “hard assets”, not credit or other factors. Commercial hard money loans typically have terms between 1 – 3 years. Borrowers use these loans to compete with all-cash buyers to purchase and sometimes renovate a commercial property before refinancing to a long-term loan at a later date.

Pros: Unlike traditional loans, you won’t spend hours preparing application documents. Hard money lenders only need to look at your collateral to see if you qualify meaning you can get fast financing. The time to funding for a commercial hard money loan is typically 10 – 15 days.

Cons: Hard money loans can present a big risk if you default. If you can’t pay back the loan, the lender has the right to seize whatever you offered as collateral to recoup their losses. You can lose both business and personal assets.

 

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SBA 7(a) Commercial Real Estate Loan for Purchase or Refinance

With 25-year terms and low interest rates, SBA 7(a) CRE loans are a great option for small businesses looking to refinance an existing commercial real estate mortgage or buy an owner-occupied commercial space. Down payments can be more advantageous than with other types of loans. For example, SmartBiz Loans® has a rent replacement option with minimal down payment, offered by our preferred SBA lending banks. This lets you keep more of your cash to invest in growing your business.

Pros: SBA loans are generally known as the “gold standard” because of low rates and long terms. Business owners who want to purchase or refinance probably won’t be able to find a better deal.

Cons: Because SBA loans are backed by the federal government, they assume some of the risk. SBA lenders want to make sure business owners can make the payments for the life of the loan so additional paperwork may be required. This can make the time to funding longer than other options.

If you’d like to know more about commercial real estate loans, you’ll find more information on the SmartBiz Small Business Blog. Purchasing Commercial Real Estate with a Loan gives the pros and cons of buying owner occupied space. Things to consider are maintenance costs, additional income from renting out space and tax advantages. Interested in building your personal net worth? Check out Building Net Worth with a Commercial Real Estate Purchase. We cover how your personal bottom line can be strengthened by operating out of a commercial space you own. Learn how one SmartBiz Loans customer saved a bundle by refinancing commercial real estate here: Success Story: Pro-Glo Auto Finish and Glass Inc. This auto repair business avoided a large balloon payment and decreased monthly payments.

 

If you’re looking for low-rates, long terms and excellent customer service to guide you through the CRE process, give SmartBiz Loans® a try. We match you with the bank most likely to fund your loan, getting you to a “yes” faster. Our SBA preferred bank lenders offer loans from $500,000 – $5 million with low interest rates and a repayment term of 25 years, meaning payments are very low.

 What you need to know: The information provided through SmartBiz® University and the articles contained therein are for educational purposes only. Use of this information is not a replacement for personal, professional advice or assistance regarding your finances or credit history.