Commercial real estate, also known as CRE is vital for anyone looking to start a business. Those who own commercial property usually need a mortgage when they want to build something in the commercial land. After construction, commercial buildings might require additional financing to keep the structure fully leased an in good shape. Business owners and developers have a few types of loans to keep in mind when financing.
Bridge loans provide the borrower with instant cash flow. In most cases, this type of loan is temporary and used to finance the immediate needs of a project. Borrowers tend to obtain them when they are waiting for long-term financing. Commercial bridge loans can be used for the purchase or refinancing of the following:
- Office buildings
- Retail property
- Multifamily housing
- Raw land (developed for commercial purposes)
Typically, bridge loans are offered by private lenders and require a good credit score as well as proof of income. Think of this loan as a way to “bridge the gap” between what you need to do immediately when purchasing a property and long-term financing.
Provided by the Small Business Administration, this loan has two types of programs: SBA 7(a) and SBA 504. The 7(a) loan is a general business loan that the borrower can use in a variety of ways; this includes buying and repairing commercial property. A typical term usually lasts for 25 years with rates between a range of 7% to 9.5%. A 504 loan is used to help business owners purchase anything categorized as “property, plant, and equipment.” 504 loans may be used to:
- Purchase existing buildings
- Purchase of land or land improvement
- Construction of new facilities or renovations
- Purchase of machinery
This type of loan is typically structured to have the Small Business Administration funding 40% of the total costs, a lender covering 50% of costs and the borrower providing 10% of the costs.
Borrowers can attain this type of short-term loan from both private lenders and investors. In general, hard money loans use a borrower’s commercial real estate as collateral for the loan. This makes the property itself the protection against a borrower defaulting on the loan. Hard money lenders will loan smaller amounts of money with a higher interest rate. Even though there is a higher interest rate, there’s a higher chance that the borrower will qualify. Businesses just starting out tend to get their first few loans this way because it is easier and quicker.
The list above is by no means comprehensive to all of the commercial real estate loans out there. For more information on bridge loans and hard money, loans feel free to check out Ocean View Funding Group’s website.
About the author: Matthew Magrone is an experienced real estate financer currently serving as Senior Account Executive and Founding Partner at Ocean View Funding Group. The company was originally founded in 2012 to provide a personalized, creative real estate related financing through private equity and banking resources for mostly real estate and small business-related projects. After spending some time working in academia for five years, Matthew is back again with the grand re-opening of his company.