Business owners are always looking for ways to improve and grow business operations – whether it’s renovating your current office space, refinancing debt, or purchasing commercial real estate. When looking to purchase real estate, business owners often ask funding from banks. However, qualifying for traditional bank loans is not a walk in the park.
Online lenders make a great alternative to traditional bank loans because they offer faster funding and lesser requirements. But the speed and convenience may cost you a bit more. As you look for the best commercial real estate loans, make sure to weigh your options before finalizing your decision.
To get you started, here are three types of business loans to purchase commercial real estate:
The 7(a) loan is the most popular among other SBA loans because of its flexibility, longer repayment terms, and flexibility of use. The Small Business Administration created the SBA loans and they guarantee up to 85% of every SBA loan, minimizing the risk of lenders. This incentive allows intermediaries to offer competitive loans to small business owners.
You can use the 7(a) loans for almost every business-related purpose, including the purchase of commercial real estate. However, you need to provide a 10% to 20% down payment and some lenders even ask you to provide collateral.
A bridge loan is a short-term loan used to purchase commercial real estate, which you can then refinance it to a long-term mortgage loan. Traditional banks and other lending institutions offer bridge loans to help business owners compete with all-cash property buyers.
Depending on your loan applications, you can borrow up to 80% to 90% of the commercial property’s loan-to-value (LTV) ratio. This means you need to provide the remaining 10% to 20% as a down payment for the property.
The CBDC/SBA 504 loan is another type of SBA loan created by the Small Business Administration (SBA). Similar to 7(a) loans, the SBA also guarantees a portion of every CDC/SBA 504 loan. But unlike 7(a) loans, you can only use this loan to buy equipment or real estate (land and existing buildings). This type of loan helps startup companies and small businesses to purchase or refinance commercial real estate. The CDC/SBA 504 loan is composed of two different loans and there is no maximum loan amount.
With the 504 loans, you can borrow up to 90% of the property’s purchase price. This means that you need to pay the remaining 10% of the property value. You can loan up to $5 million, which you can pay back within 10 to 20 years. It’s best to use the 504 loans to purchase real estate because it offers longer repayment terms and lowers interest rates compared to bridge loans.
To know more about small business loans, check out SMB Compass’website. We have a variety of loan programs to help you with every business need. Talk to a lending expert today! Give us a call at (888) 853-8922 or email us at info@smbcompass.com.