Taking a Commercial Real Estate Loan

What is a Commercial Real Estate Loan?

A commercial real estate loan is any type of financing for a business venture involving commercial real estate. These are loans for commercial properties, not residential properties like a home mortgage. Commercial properties include hotels, office buildings, shopping malls, gas stations, and more. Learn more about commercial real estate loans and how they work by reading the sections below.

- What are commercial real estate investment options?

- What are the different types of commercial real estate loans?

- What are the benefits and drawbacks of each type of commercial real estate loan?

- What are the best commercial real estate loan options for your situation?

- How do you apply for a commercial real estate loan?

Commercial Real Estate Investment Options

Before you choose between a commercial real estate loan and other types of financing, you should know the different types of commercial real estate investments available to you. Commercial real estate investments are generally broken into two categories: debt and equity. Debt investments are secured by a commercial real estate property. Equity investments are unsecured by property.

- Debt investments – Debt investments are when you take out a loan to fund the purchase of a commercial real estate property. These loans are then paid back with interest over time with the profits from the commercial real estate. Debt investments are generally secured by a commercial real estate property and have lower interest rates than equity investments. Debt commercial real estate investments include:

- Commercial mortgage

- Construction loan

- Bridge loan

- Short-term loan

- Equity investments

– Equity investments are when you use your own money to fund the purchase of a commercial real estate property. You then hope to earn a profit by selling the property at a higher price than what you paid. Equity investments do not require repayment, but they have higher interest rates than debt investments. Equity commercial real estate investments include:

- Direct equity purchase

- Partnership

- Joint venture

- Other commercial real estate financing options

- There are many other commercial real estate financing options, including seller financing and seller concessions, cash-out refinance, credit lines, and home equity loans.

Types of Commercial Real Estate Loans

There are several different types of commercial real estate loans that you can apply for based on your financial situation and the type of property you want to invest in. There are also different types of commercial real estate loans available that can be modified depending on your needs. Learn more about the different types of commercial real estate loans below.

- Debt-to-equity swap – A debt-to-equity swap is when you take out a commercial real estate loan to fund the purchase of a property, but then refinance the loan with another company and turn it into an equity investment. The new company will buy the debt from your original loan and give you equity in the property. This type of loan is not available to all lenders, so you’ll need to find a company that offers it.

- Secured loan – A secured loan is a type of commercial real estate loan that has collateral. The lender will take ownership of the commercial real estate if you don’t pay back the loan.

- Unsecured loan – An unsecured loan is a commercial real estate loan that does not have collateral. The lender will charge a higher interest rate for this type of loan.

Equity Loan

An equity loan is a commercial real estate loan where the lender will give you funds and then take a percentage of the future cash flow from the commercial real estate as repayment. You can take out an equity loan to fund the purchase of a commercial real estate property that hasn’t been built yet, such as a hotel, shopping center, or gas station. This option is only available if you have equity in your assets, such as your home, retirement account, or other investments. If the commercial real estate loan goes well and you start making a profit, you can use that money to pay back the loan. If the loan goes poorly and you can’t repay it, you can use the property as collateral and take it back from the lender.

Debt-To-Equity Swap

A debt-to-equity swap is when you take out a commercial real estate loan to fund the purchase of a property, but then refinance the loan with another company and turn it into an equity investment. This is similar to an equity loan, but the lender will take ownership of the commercial real estate if you don’t pay back the loan. This type of loan is not available to all lenders, so you’ll need to find a company that offers it.

Secured Loan

A secured loan is a type of commercial real estate loan that has collateral. The lender will take ownership of the commercial real estate if you don’t pay back the loan. This type of loan is best if you have less than stellar credit or don’t have enough cash on hand to make a large down payment on the commercial real estate property.

Unsecured Loan

An unsecured loan is a commercial real estate loan that does not have collateral. The lender will charge a higher interest rate for this type of loan. This type of loan is best if you have excellent credit and can make a large down payment on commercial real estate property.

Conclusion

Commercial real estate loans are a great option for anyone who wants to invest in properties that will produce a steady cash flow and appreciate over time. Before choosing between the different types of commercial real estate loans available to you, you need to decide what type of property you want to invest in and how much money you can afford to put down. Once you’ve narrowed down your options, it’s time to apply for a commercial real estate loan and make your dream of commercial real estate investment a reality.