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Commercial Loans in 2023 – What Are The Best Options in Real Estate?

Commercial Loans in 2023 – What Are The Best Options in Real Estate?

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Do you need a real estate commercial loan? If it is your first time, you could be forgiven for thinking of only the traditional mortgage, equity loans and refinancing.

But commercial real estate loans come in their numbers. You can choose the one that suits your needs best, or that you qualify for easily.

Despite inflation and rising mortgage rates, the real estate market in the USA has remained quite solid. Thanks to this, commercial loans including hard money ones such as you would get from DFW commercial loans are available in their numbers. 

There is something to note though: Commercial real estate loans are products designed for businesses. They are not designed for residential property. Even the requirements for these types of loans differ a lot from the residential loans. 

The best options for real estate commercial loans are as follows:

1. Term loans

If you have a running small business, you will most likely find the term loan most appropriate for your business expansion needs. This is a popular option in the real estate market in 2023 because of its considerably easier accessibility. 

As you might have guessed from the phrase “term loan,” this is a kind of loan that should be repaid within a certain term (well, which loan doesn’t have a term?). 

When borrowing this loan, you will agree to pay the loan at a certain time. It can come in a fixed or adjustable interest rate. 

To qualify for this business loan, you will need collateral. Then the lender will take you through the loan approval process, before you can get the funds. 

They will want to see your books too. 

Some uses that you can out your term loan to include buying office equipment, expanding operations, rent bigger facilities, and so on. 

2. Bridge loans

As you might guess from the name of this facility, it is a commercial real estate loan product to help you to bridge the gap, as you wait to get a bigger loan. For instance, you can take it as you wait for a bigger loan when you refinance your mortgage

For example, when bidding for a hot business property, you could apply for a bridge loan to be able to outbid the other potential buyers. 

Once you get the property, get a refinance on it. When you are approved for a refinance and you get money, you can pay the bridge loan. 

Bridge loans are given on a short term basis, sometimes 6 months or more, but never beyond 36 months. 

This is a high risk loan to the lender and the borrower, but especially to the lender. Chances of defaulting can be high. Therefore, it comes with higher interest rates. 

Please also note that it might be hard to get this kind of loan from regular lenders. Thus, you are better off looking for one from the alternative lenders. 

As a business owner, you need a good credit score/rating. You should also ensure your debt to income ratio is low.  

3. A business line of credit

To some extent, this type of commercial real estate loan works in the same way as a credit card. 

A credit card allows you to “spend” money you don’t have, but up to a certain limit. You pay back this money with interest rates. 

A business line of credit works in the same way, but this time, the limits are bigger. The best thing is that instead of getting all the cash upfront, you can make this a rolling line of credit. 

What this means is that as long as you are within the limit, you can borrow certain amounts at different times, as the need for the same arises. 

Some of the business needs you can meet with this loan including settling the payroll, or other “urgent” operating expenses. 

Every month, make sure you pay the minimum required amount but you can also pay the entire sum you borrowed. 

4. Equity loans

With time, your equity in a building grows, as you make more monthly payments on your mortgage. 

As you keep on paying, you eventually qualify for an equity loan. To demonstrate this, if you had taken a mortgage of $400,000, and you have paid $250,000, your equity in the business property is $250K. That is what you take the loan against, with the property serving as collateral. 

When you need to increase your inventory, open a new branch, or meet other business expenses, consider getting a loan on your equity. 

5. SBA Loans

The Small Business Administration offers different types of loans for small businesses and some of them are perfect for real estate. These are the SBA 7(a) and CDC/SBA 504. 

If you meet the requirements for these loans, they could be more beneficial to your business than most other options. You can get high amounts at affordable interest rates. 

6. Construction loans

If you are building a business property, get a construction loan. The lender advances you this loan on the agreement that you will get a commercial mortgage after you are done building. 

The interest rates for construction loans can be high and the repayment period is typically between 18 and 36 months.

Conclusion

There are many commercial real estate loans you can borrow today. However, some are hard to qualify for, especially from traditional lenders. That’s why you need to try the alternative lenders. 

Oh, did we mention the purchase loans? These are commercial mortgage loans to enable you to buy a business property. 

The interest rates for all of these loans can depend on your credit score, so put your house in order before approaching a lender. 

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