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Commercial loans for real estate are used to buy property, undertake construction, or renovate an existing property. These loans are intended for business owners who wish to occupy the property rather than for investors hoping to make a profit off of it. These loans come in a few different flavors each with its own interest rates, terms, and repayment schedule. There are also a variety of sources for commercial real estate loans, and it depends on your situation which one of them is the best fit.
If you’re considering a commercial real estate loan, AVANA Capital is here to help. Keep reading to learn how these loans work and who can provide them.
Before reaching out to lenders, you’ll need to decide which type of loan is necessary for your commercial real estate venture.
In the fast-paced world of commercial real estate, timing is everything; property can go on the market one day and be gone the next. Commercial bridge loans allow buyers to take advantage of a deal, providing fast, short-term financing.
Interest rates are higher than traditional loans, and borrowers make interest-only until the end of the repayment period when the full cost of the loan is due. Repayment terms for a bridge loan are usually measured in months rather than years. Buyers can renovate a property for a profit to pay back the loan or use the repayment term to seek financing with more favorable terms.
Term loans are the bread and butter of commercial real estate lending. This type of financing offers much lower interest rates compared to bridge loans and has a long repayment period of five to 30 years. They’re similar to home mortgage loans in this sense. Commercial banks are the most common lender for these types of loans, but they’re also available from dedicated commercial real estate banks and online lenders.
SBA (Small Business Administration) loans are very similar to term loans offered by traditional banks, but the federal government backs the loan, lowering the bank’s risk and allowing them to offer borrowers a lower interest rate. There are two major SBA programs, 7(a) and 504.
7(a) provides up to $5 million in financing, with repayment periods as long as 25 years. With a 7(a) loan, borrowers can buy property, start new construction, or renovate an existing property. The SBA 504 loan program also has a maximum of $5 million in financing. 504 loans can act as a second mortgage which allows for larger projects to be completed. Both loan types have a lengthy approval process. Both the lender and the Small Business Administration need to review the borrower’s application.
Getting approval for a commercial real estate loan is a complicated process. Both the borrower and the lender have dozens of small details that need to be examined to determine if the loan is a good prospect. These are several of the most important things to look at when applying for a commercial real estate loan.
Origination Fees – a flat fee charged by the lender, usually between .25% and 2% of the loan’s value.
Interest Rates – anywhere between 5% for an SBA loan and 14% for a bridge loan.
Minimum Credit Score – most banks require a score of 660 but will go as low as 580 with a larger down payment or higher interest rates.
Monthly Cash Flow – lenders want adequate cash flow to support the monthly payment on the debt they seek.
Time in Business Requirement – lenders typically seek companies with an established operating history, but the SBA specifically allows for start-up financing. If a business doesn’t have an established operating history, that doesn’t mean that financing is unavailable.
Processing Time – depending on the lender, processing time can be anywhere from a day to several weeks. Faster processing often comes with higher interest rates as the lender has less time to evaluate their risk.
Now that you understand the commercial real estate lending process, let’s look at some of the top lenders, who they’re good for and who they’re not.
For commercial real estate financing, AVANA Capital is a one-stop shop. This lender offers fast financing through bridge loans that are approved in as little as 48 hours but also provides SBA financing to borrowers seeking a long-term loan with a low-interest rate. Pre-approval for SBA loans comes in just a few days and closes in as little as 45 days.
One of America’s best-known banks, Wells Fargo also has one of the largest commercial real estate portfolios in the country. This is a great option for SBA loans, with some of the lowest interest rates and most generous repayment schedules. However, the processing times are considerably slower than online lenders, and Wells Fargo only works with borrowers with high credit scores and above-average monthly revenue.
Similar to Wells Fargo, U.S. Bank is a nationwide financial institution with an extensive real estate portfolio. Its SBA loans offer some of the lowest interest rates on commercial real estate loans, and its credit requirements are quite as stringent as Wells Fargo. However, its processing time is several weeks, and there is no online application available.
Fundation focuses on medium-term loans of a few years and between $25,000 and $500,000. The company’s interest rates of 7% or higher are considerably more than Wells Fargo and other large banks while also charging origination fees of around 3%. However, Fundation approves borrowers in just a few days, so it’s a good option in tight real estate markets. The loan can always be refinanced later with an institution offering more favorable terms.
If you are seeking a reliable lender with favorable terms and expertise, look no further than AVANA Capital. We offer the best commercial real estate financing to help you reach your business goals. Contact us today for more information or apply to get started.