If you’re looking to break into commercial real estate by buying property, there are several types of loans that may be able to help. This article gives a rundown of each. Keep in mind that in most cases, these loans’ repayment schedules run from 5 to 20 years.
To raise funds for commercial real estate, traditional mortgages are one option. The lender decides the maximum loan amount, and a down payment of 15 to 35% of the property’s fair market value is usually required. Payments are required monthly, and interest rates usually range between 4.75 and 6.75%. Generally speaking, these loans require the borrower to be well established, with a long time in business and a strong credit score.
The CDC/504 Loan Program
The CDC/504 Loan program is run by the US Small Business Administration (SBA). In this setup, the SBA works with a Certified Development Company (CDC), which are nonprofits that focus on economic development. This type of loan is available for many business expenditures, including purchasing land and buildings as well as performing renovations, all of which can be useful for commercial real estate. According to the SBA’s website, these can cover projects costing up to $1 million. The borrower must provide 10% of the cost, however. These loans usually require a credit score of 680 or higher, and the CDC may impose additional job-creation requirements.
The SBA 7(a) Loan Program
SBA 7(a) loans provide another potential avenue for financing a commercial real estate venture. Like loans from the CDC/504 program, borrowers need a credit score of 680 or above. The borrower must contribute at least 10% of the purchase cost as a down payment, and borrowers often contribute more. These loans can fund purchases of up to $5 million. You can learn more about 7(a) loans here.
Pendleton Commercial Financing’s other blog posts cover many additional topics, so be sure to give them a look!