Common Commercial Real Estate Loans and Terms

posted on Friday, December 17, 2021 in Financial Tips

commercial real estate office workers

Commercial real estate, or CRE, and commercial property are properties exclusively used for conducting business purposes, rather than residential. They include malls, shopping centers, and office spaces. They can also refer to large residential rental spaces and any land used to generate profit.

Investing in CREs allows you to properly conduct your business. If you’re looking for a place to call your company’s home, you’ll be needing some funding. That’s where commercial real estate loans come in.

What are Commercial Real Estate Loans?

Simply put, these are mortgage loans and other types of financing that allow companies to purchase a new property for business purposes. These are secured loans that use the commercial space as collateral. They are offered by financial institutions, insurance companies, investors, and other capital sources.

Types of CRE Loans

Although there are a variety of loans designed for financing your commercial real estate purchase, there are a few major and common categories. Here is a rundown of the commonly used CRE loans.

1. Ordinary Commercial Real Estate Loan

Also known as “permanent” and “traditional” loans, ordinary CRE loans are closely similar to a residential mortgage. They are the first mortgages on a commercial property and should have some amortization that could last for at least five years. Like a regular mortgage, the purchased property can be used as collateral. However, companies can use other forms of capital, such as equipment, inventory.

2. SBA Loans

These are small-business loans granted by the United States Small Business Association. There are multiple SBA loans available that can suit your needs. They all are issued by private lenders but are backed up by the federal government. If you have been denied a traditional loan, SBA loans can be a good option.

3. Private Investment Property Loans

These are loans from private lenders that have shorter terms but are amortized as 25 to 30 years. They typically offer higher fees and interest rates. These loans are usually used for some of the more inherently risky property transactions like fix-and-flips.

4. Commercial Bridge Loans

These are offered as quick financing to “bridge the gap” until you can secure long-term financing. Commercial bridge loans come with very short terms that only last for a few months or even a few years. This type should be fully paid after maturing.

To know which is the right loan for you, first, you need to determine how quickly you will need the funds. SBA loans and traditional loans are not fit for quick financing because they can sometimes take months before you get the money. You should also understand your current qualifications to narrow down your options.

If you’re ready to take advantage of a commercial real estate loan, contact Community 1st Credit Union. Discuss your options with one of our C1st representatives.