Commercial real estate loans (CRE loans) are a popular way for businesses to finance the purchase, renovation or expansion of commercial property such as these top US real estate franchises. We will discuss the pros and cons of business loans, best lenders, loan requirements, and more. Let’s start!
What is a commercial real estate loan?
Commercial real estate loans are mortgage loans used to purchase, refinance or renovate commercial properties. The terms and conditions of these loans can vary greatly. Commercial real estate financing can be obtained from many sources, including traditional banks, credit unions, life insurance companies and private investors.
Is a commercial real estate loan right for your small business?
CRE loans can be attractive for small business owners, however, it is important to understand the pros and cons of taking out such a loan before making any decision. The Small Business Administration (SBA) has helpful information on its website about things to consider when applying for a business loan. Before applying for a loan, find out how these 5 real estate investing mistakes could be killing your business! Learn why.
Benefits of commercial loans for real estate
Commercial real estate loans can offer many benefits to business owners, including the following five:
- Flexibility in repayment terms – You can usually choose from a variety of repayment options, including interest-only payments, lump sum payments, and more.
- Low Interest Rates – Commercial real estate loans often come with lower interest rates than other types of loans, such as business credit cards or personal loans for better monthly payments.
- Potential tax benefits – Interest paid on a business loan is often tax deductible. This can be a valuable benefit, especially for companies struggling to make ends meet.
- Better Loan Terms – You can potentially get higher loan amounts and longer repayment terms than other types of loans. It can give you the financial leeway you need to grow your commercial real estate business.
- Build business credit – Making timely payments on a CRE loan can help you build business credit, which can be helpful if you need to apply for a business loan in the future.
Disadvantages of commercial real estate loans
There are also some potential downsides to taking out a CRE loan, including the following four reasons:
- Fees and Closing Costs – Commercial real estate loans often come with a variety of fees and closing costs that can add up. Hard money loans, for example, can be more expensive than traditional loans.
- Loan minimums – Some lenders have minimum loan amounts, which can range from $100,000 to $1 million or more. Down payment requirements can also be higher, usually 20% to 30% of the purchase price of the property.
- Higher interest and DSCR – Interest rates on commercial loans are often higher than those on residential loans. Your debt service coverage ratio (DSCR) will also be considered, which measures your ability to repay a loan using existing cash flow.
Best commercial real estate lenders in 2022
Here is a list of the best commercial lenders to get SBA loans in 2022:
1. American Bank
US Bank offers different types of business loans with longer terms up to 25 years, but has higher credit requirements than other lenders on this list.
KeyBank Real Estate Capital provides financing for commercial and multi-family properties through various solutions such as corporate mortgage-backed securities markets.
3. Wells Fargo
Wells Fargo is a great choice for borrowers looking for a conventional bank mortgage with financing up to $1 million over five and 10 years, and up to 20 years for larger projects.
With over 14,000 loans, CBRE Loan Services provides expert lending services tailored to the specific needs of its clients. They have offices in the United States, Europe, and Asia-Pacific.
5. JPMorgan Chase
JPMorgan offers commercial loans up to $15 million. However, for multi-family projects, they will lend up to $25 million.
6. Walker and Dunlop
With 39 offices nationwide and over 1,300 employees, Walker & Dunlop has closed over $260 billion in business since 2011. They have many financing options available.
SmartBiz takes the complicated and time-consuming process of applying for SBA loans and makes them more manageable. Financing on an SBA loan of up to $5 million and 25 years with a loan-to-value ratio of up to 90% is available.
8. Northeast Shore
Northeast Bank offers loans, including SBA and USDA loans, in many sectors such as hotels, gas stations and self-storage.
Berkadia crafts long-term solutions tailored specifically around what’s best for your unique situation.
Commercial real estate loan requirements
Here are some key requirements for getting a commercial real estate loan:
- Strong Credit Score: To qualify for a CRE loan, you will need a strong credit score. Lenders generally look for a credit score of 680 or higher.
- Solid business plan: Lenders will also want to see a well-thought-out business plan. This should include information about your expected income, expenses, and how you plan to use the loan proceeds.
- Security: Most lenders will require some form of security, such as a mortgage on your property or a personal guarantee.
- Down payment: You will usually need to make a 20-30% down payment on a CRE loan.
- An experienced team: It is also important to have an experienced team in place, including a real estate agent, a lawyer and an accountant.
How to get a commercial real estate loan
With a little preparation and knowledge, you’ll be well on your way to getting the financing you need. Follow these steps:
- Determine the amount you need to borrow: this will help you narrow down your list of potential lenders.
- Compare interest rates and terms: Business credit ratings, collateral, and down payments will all play a part in the interest rate you’re offered.
- Choose the right lender: LTV, fees, and customer service should all be considered when choosing a lender.
- Get your paperwork in order: This includes your financial statements, business plan, and other documents the lender will need.
- Negotiate the terms of the loan: Once you have chosen a lender, it is time to negotiate the terms of the loan.
- Take out the loan: Once you’ve reached an agreement with the lender, it’s time to take out the loan and start expanding your business.
Do commercial banks offer home loans?
Yes, commercial banks offer home loans. Commercial banks generally have more experience with home loans than other lenders, and they may be more willing to work with you on loan terms.
What credit score is needed for a business loan?
To qualify for a commercial real estate loan, you will generally need a credit score of 680 or higher. Lenders want to make sure you are a safe bet before lending you money.
What is a good interest rate on commercial loans for real estate?
Commercial real estate loans currently have an interest rate of 2.2% to 18%. Interest rates on these loans are determined by the borrower’s credit rating, the amount of money borrowed and the value of the property used as collateral for the loan.
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