What You Need to Know About Commercial Loans

Whether you are looking for a commercial property as an investment or your business expands and you are considering purchasing a new location, you need to be well informed regarding commercial loans.  If you have reached the stage where you are ready to consider a permanent home for your business, or an additional property for expansion, you should be familiar with the type of business loans available for commercial property purchases. Commercial business loans provide financial support for property acquisition, rehabilitation, renovation, and construction.  They are secured by a lien and can be amortized or balloon loans.

Amortized Loans

Amortized business loans and residential loans differ in that amortization is not at a thirty-year standard. These loans are typically set up with intermediate terms ranging up to three years, or long terms of five to twenty years.  They function much the same as their residential counterparts and long term fully amortized loans can be obtained.

Balloon Loans

Balloon loans are loans you make smaller payments on throughout the loan’s term.  However, at the end, you will have to satisfy a large payment or refinance in order to clear your principal.  If you fail to clear the principal, you risk having to refinance the loan or sell the property. The final payments on balloon loans can be hefty, so choosing this option is best only if you are confident you can obligate the final payment.

Business Plans

No matter which loan you select you will need a business plan that strongly supports your assertion the business is worth the lender’s risk.  Expect the underwriting process to be rigorous.  You will have to answer many questions to prove the loan is a wise investment for the lender.  Commercial business loans are considered more of a risk because most businesses have a short credit history.  That means interest rates will be considerably higher than you may have experienced with residential lending.

Business Loans for Real Estate

Here are five types of business loans to consider for real estate:

SBA 7(a)

This is a common loan that is generally used for working capital vs. a commercial loan. It is a viable option to purchase or refinance a property that is less than five million dollars.  There is a ten to twenty percent down payment requirement, and the loan is meant to cover 85 to 90 percent loan to cost.

The down payment can be waived for those businesses that meet certain requirements. There are several restrictions on these loans but offer favorable down payment options.


This is really a loan pair where a traditional bank and a CDC join to provide the loan. There are no caps on the loan amounts, but there is an income restriction cap of five million.  Also, your business’s net worth must fall beneath 15 million.

Commercial Mortgage

These loans are given by banks or other traditional lending institutions.  There is no federal backing.  The structure of the loans can range from 3 – 20 years with a loan to purchase price of up to 80%. Meaning you will have to bring at least 20% of the purchase price or if refinancing only be able to get a loan of up to 80% loan to value.  Principle’s credit score due play a role along with net worth verification and 3 years of tax returns.

Commercial Bridge Loans:

These loans are a short-term funding option.  The term lengths run around 6 to 36 months and can be used for just about any scenario but should be considered exactly what the loan is called, a bridge.  The end goal is to refinance with a more favorable long-term mortgage.  The ability for quick turn around means a buyer can compete with possible cash buyers but the interest rate is typically higher.

Commercial Hard Money

Hard money loans have similar qualifications to bridge loans.  They are generally issued at short terms of 12 months – 18 months.   They differ in that they are not just for renovation and rehab.  LTV and LTC varies according the the project, location, principles, experience, and capital contributions.

When you are deciding what loan to choose, consider the fees, requirements, and terms carefully. Choose the loan that will suit your investment and businesses needs and situation. The ultimate goal should be to choose a loan that places your business in the right property at the right price.  At asisloans.com we excel at providing the capital you need when you need it. We have solutions for all types of properties, conditions, principle’s financial situation, nationally and internationally. We also offer asset based loans both for commercial and residential investments.  Contact us today for a complimentary consultation.