Loans for commercial properties are among the most diverse products in the financing industry. There are a lot of ways to use and profit from those properties, after all, and the financing should reflect the business model of the owner or investor. That means for each different acquisition and investment strategy, there will be a niche product and several other general options to choose from.
First, though, are you looking for commercial real estate for your own facilities or for investment income? The answer changes the options available to you for financing.
Owner-Occupied Commercial Property Financing Options
If your business will operate out of the property you’re buying, then the loans designed for short-term flipping or for income properties are not going to do you much good. The main options here are traditional commercial mortgages, which have LTVs between 40 and 75% depending on the building type, program, and applicant’s credit rating.
Small businesses that have trouble qualifying for real estate financing under traditional bank programs will find options with private lenders and with the SBA’s loan program, but the general idea is consistent. The loan requires a significant down payment and features a fixed rate, long-term, and amortizing payments.
Commercial Real Estate Loans for Investment Properties
Investors have a much wider range of options for commercial loans. For flippers, bridge loans designed to use the value of the property acquisition are plentiful. LTVs on these range from 70% up to the full value of the property depending on the investor’s credit, the program, and the property in question. Those bridge loans can also be used to refinance existing properties for up to three years, providing a source of working capital to those who want to use the equity in stabilized long-term investment properties to fund a new venture.
Investors looking to go beyond flipping or income properties and into property development will also want to look into construction loan programs. These loans are based on milestone reviews of the property’s value. They give you starting capital, and then as you build features into the project, the additional equity becomes available for financing.
Stated income loans also exist as flexible options for those who keep income properties. They can be tapped for practically any purpose because they are based on the income generated by your stable long-term investments. The cost of capital is controlled by the building itself operating as collateral, but the valuation is based on its earnings and not its market value.
The result is a powerful tool that investors with a mature portfolio can use to start practically any project. Keep this in mind as you tackle bigger and bigger investment projects in the future.