Those wishing to expand or renovate a property or business can acquire financial assistance through real estate lending. These loans are similar to residential mortgages but different from small business loans. Typically, they are known as CRE loans.
What Are CRE Loans?
Often, people take out a mortgage to buy a house. Similarly, one can take out a mortgage and use it to purchase a commercial property. Commercial Real Estate (CRE) loans finance businesses, enabling them to renovate current properties or purchase new ones. In most cases, the CRE loan will demand the company in question to be owner-occupied. This means that it has to physically reside in 51% of the property.
On the other hand, if the property is majority owned, borrowers can get an investment loan. CRE loans are not limited; they can be used in various businesses. For instance, industrial buildings, apartments, restaurants, and office buildings can utilize CRE loans for financing and development.
Type of CRE Loans and Their Importance
Traditional Commercial Mortgage
Numerous banks offer traditional commercial mortgage for various types of owner-occupied properties. Entrepreneurs who qualify for this type of CRE have substantial business revenues and good personal credit.
SBA 7(a) Loan
The loan can be used to renovate an existing property, purchase buildings or lands, and construct new properties. The SBA program allows lenders to borrow up to $5 million. Moreover, the advances are amortized, meaning the initial cost is written off over time. In essence, those who take it pay a similar amount each month until the credit is cleared.
SBA 504 Loan
This loan enables long-term equipment purchases for owner-occupied real estate. The 504 advances comprise two different loans: one from a bank and the other from a CRE. If an individual uses the loans to purchase real estate, it should be paid back within 20 years.
CMBS/ Conduit Loans
These are commercial mortgages pooled together and later sold in the secondary market to an investor. Conduit loans often range between $1 million and $3 million. They come with an amortization period of five to thirty years, a period that can be negotiated.
Commercial Bridge Loans
These loans are short-term payouts meant to “bridge the gap” as the investor waits to secure long-term financing. Most of them are not amortized and should be paid back within six months to two years.
Real estate investors can take any CRE loan as long as they qualify. However, they should consider the collateral and the creditworthiness before they settle for a specific CRE loan.