What is a Commercial Real Estate Loan?
A commercial real estate (CRE) loan is used to purchase real estate exclusively for business purposes, not as a living space. The property purchased can be anything from a strip mall to a large warehouse.
Purchasing a CRE property can help a business owner build personal net worth and strengthen their business. It goes without saying that low rates, long terms and avoiding a balloon payment should be your goal when looking for a CRE loan.
Average Commercial Real Estate Loan Rates by Loan Type
SBA 504 Loan
A 504 SBA loan might be a good fit for small business owners interested in purchasing a commercial real estate that fits with the public policy goals of your local Certified Development Corporation (CDC). Typically, up to 50% of project costs are funded by a lender backed by the SBA. CDCs typically fund up to 40% of the project cost. The final 10% is a cash down payment expected to come from the small business owner.
- Interest Rates: The Small Business Administration (SBA) sets the maximum interest rate banks can charge on CDC/504 loans. The maximum interest rate in 2019 ranges between approximately 4.39% and 6.67%, depending on loan size and amount.
- Typical Loan Term: 20 years with no balloon payment
- Difficulty Qualifying: You must have a credit score above 650 and run a profitable business at least two years old.
SBA 7(a) CRE Loan
SBA 7(a) loans are the most popular loan program offered by the Small Business Administration. These loans rates with fixed or variable interest rates are up to $5 million and can be used to purchase, refinance or renovate commercial property.
- Interest Rates: For an SBA CRE loan from SmartBiz Loans, 7.00% - 8.25%*.
- Typical Loan Term: 25 years with no balloon payment
- Difficulty Qualifying: One of the downsides to SBA loans is the time it takes for a lender to process and approve your loan. Companies like SmartBiz Loans have a streamlined process that speeds up the loan process, matching customers to the bank most likely to fund.
* Loans have a fixed rate of Prime Rate plus 2.00% to 2.75% or a variable rate of Prime Rate plus 1.50% to 2.75%.
SmartBiz Loans recently worked with a small business to help them refinance a commercial real estate loan and avoid a large balloon payment.
Pro-Glo Auto Finish and Glass in South Carolina. initially came to SmartBiz for an SBA loan through a SmartBiz bank partner to shore up cash flow and buy new equipment. They also needed to refinance a high interest rate commercial real estate loan with a balloon payment coming due. SmartBiz was able to assist them on both fronts. Read their story here.
You can go straight to a bank for an affordable CRE loan. These loans have less requirements than an SBA loan, making it easier to qualify.
- Interest Rates: 4.20% - 8% (fixed or variable)
- Typical Loan Terms: 5 – 10 years with a balloon payment
- Difficulty Qualifying: You might have a problem finding a small loan size as they are not profitable for banks. Down payments may be larger because there is no SBA guarantee.
Commercial Bridge Loan
Commercial bridge loans provide short-term CRE financing if you need to act quickly on a real estate opportunity. Bridge lenders provide loans with terms of six months to a year during which you make interest only payments. At the end, you either have to pay the entire balance of the loan or refinance with a long-term loan.
For example, if you are outgrowing your retail space and another becomes available, you'll want to quickly to secure a new space.
- Interest Rates: 6% – 30%
- Typical Loan Term: Usually available for a 6 month period, but can extend up to 12 months.
- Difficulty Qualifying: Qualifications for a commercial bridge loan vary from lender to lender.
Hard Money Loans
These loans are from non-bank lenders and are popular for small business owners who want to purchase or renovate real estate but can’t qualify for bank or SBA loans.
- Interest Rates: 7.5% to 15%
- Terms: 3 – 36 months
- Difficulty Qualifying: Hard money lenders have lower qualification requirements and work faster than banks. The timeline for receiving your funds is usually 1 to 2 weeks, versus several months with a bank.
For information on why a commercial real estate loan can be good for you personally, review this article: Build Net Worth with a Commercial Real Estate Purchase.
For additional information, visit this blog post on the SmartBiz Small Business Blog: Purchasing Commercial Real Estate with a Loan.
Interested in a low cost commercial real estate purchase or refinance? The SBA commercial real estate loans offered by SmartBiz Loans preferred SBA lending banks, feature low rates and long terms. A rent replacement option is available with a minimal down payment, and no balloon payments. Learn more and prequalify on the SmartBiz Loans website.