Business Growth
April 17, 2019

Small business owners considering buying or renovating commercial real estate to expand or expand their business should consider the Small Business Administration’s (SBA) Commercial Loan Program. If you are worried about whether you will get regular commercial loans, another option is to try to apply for the SBIA programs. This guide covers a wide range of commercial lending opportunities for small businesses in the US and abroad

The Advantages of a Commercial Loan

The immediate advantage of a commercial loan is that your business gets the money it needs to expand immediately, not just for a few months or even years. You will need to compare the rates on commercial loans from different lenders to find the one that is best for you. However, if you need a loan quickly, this may be your best option, but bear in mind that commercial loan rates tend to be higher than those charged by banks.

As you can guess from the name, one important way in which commercial loans differ from other loans is the amount of money that can be borrowed. You can get large sums for your business without having to give up any property rights.

While some commercial banks will require a down payment, and some financial institutions may not require one, commercial lenders can require borrowers to provide certain assets as collateral. In some cases, a bridging loan offers an opportunity to purchase commercial real estate without having to endure the lengthy processes that often involve long-term corporate financing and mortgages. However, in some cases borrowers will have to refinance their bridging loans if they have exceeded the first year of their term.

These loans can be used for a wide range of working capital needs and are considered the most popular of the SBA loans. There are many different types of commercial real estate loans, but generally they can all be divided into two main categories: commercial real estate loans and commercial mortgage loans. Some lenders divide commercial loans into different categories depending on how the loan is repaid and what type of loan there is. Most will have fixed periodic payments based on creditworthiness as well as a down payment. 

Unlike other types of commercial loans, which provide a lump sum to the borrower, a commercial loan is released as a hard-money loan. Hard-money loans charge a higher rate of interest than traditional commercial mortgages. The more money a lender gives you and the higher the stakes, the harder it will be for you to qualify for a commercial loan.

In general, commercial mortgages do not have as long terms as most residential loans, which are typically 30 years. When you apply, choose how long you want to repay your commercial loan, and let’s assume the commercial real estate loan is $2.5 million. Depending on the lender, larger commercial mortgages can have terms of up to 40 years, smaller commercial loans of up to 10 years or less. 

Rental apartments (from five units) can be financed with a commercial loan, while rents of five or more units (up to four units) and rented apartments of more than three units can all be financed by commercial loans, just as a residential loan can finance a rent of three or fewer units but not all units.

Getting Approved

What you need to approve depends on the amount you want to borrow and the type of commercial loan you are going to apply for. Lenders check a company’s credit rating to see if it is eligible to apply. If the company is debt-free and applies for a loan of at least $100,000 or $125,000 per year, the lender wants you to generate an NOI of “at least” $120,500 and a NIM (no more than $250,000) of $150.0 million.

If you qualify for a commercial loan, you should always assume that your business needs more money than you would need for a small loan. If you can prove that you and your business can grow with the loan and you can repay the money in a reasonable time, you are a good candidate for commercial loans.

 

 

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