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When looking to diversify your investment portfolio, you may consider investing in commercial real estate. There are numerous ways you can invest in commercial real estate; for example, you can purchase a multi-use office building or apartment building.
The first step for any CRE project is identifying funding for your business and project needs. By and large, there are numerous types of commercial real estate financing solutions for you to consider. One type of commercial real estate loan is a small balance commercial loan.
In this article, we examine what makes small balance commercial loans unique and when they are beneficial.
A beneficial characteristic of small balance commercial loans is their loan term flexibility.
Let’s say you have a CRE project timeline you wish to follow. Finding a traditional commercial loan that fits this timeline can be challenging because of the strict terms that some traditional commercial loan lenders may follow.
Rather than changing your project’s timeline to fit a traditional loan, you can utilize a flexible small balance commercial loan. Your loan terms will depend on the lender, but you are more likely to find more flexibility than traditional loans.
Another benefit of small balance commercial loans is the loan amount. As the name implies, a small balance loan tends to offer smaller loan amounts than some traditional or high balance loans. This makes small balance loans more attractive to investors who are interested in funding smaller CRE projects.
For example, a smaller CRE project that can benefit from a small balance loan would be the purchase of a five-unit apartment building. Due to the property’s size, the investor may not require as much funding compared to a larger-scale project. In this scenario, it would be more beneficial to obtain a smaller loan amount covering the project’s cost rather than a larger loan with a higher minimum loan amount.
A challenge many borrowers face when financing a CRE project is the complexity of various loan structures. Understandably, this complexity can make funding a particular project seem too difficult to attempt.
Thankfully, small balance loans offer a flexible and less complex financing solution. Due to this type of loan’s flexibility, a borrower can tailor it to meet their unique needs.
The flexibility available to a borrower depends on the lender they partner with. In some scenarios, the flexibility a borrower can utilize with a particular lender will decrease. For example, a bank may scale back the loan flexibility it offers due to economic downturns, as seen during the COVID pandemic. Scenarios such as this can lead a borrower to seek financing from other small balance lenders, such as a private debt fund.
It is crucial to find a loan that aligns with your business strategy to maximize a small balance commercial loan’s benefits. The best way to achieve this is to partner with a private debt fund like AVANA Capital.
With a deep understanding of the commercial real estate market, AVANA Capital provides a streamlined financing experience for each borrower. First, AVANA Capital learns more about your CRE project goals and needs. Using this knowledge, AVANA Capital creates a tailored financing option that aligns with your business goals. This ensures borrowers experience timely results and execution when funding their projects.
Borrowers can choose from several commercial real estate financing options with AVANA Capital. Some of these options include SBA 504 Acquisition and Construction loans, Conventional Construction and Expansion loans and more. By partnering with AVANA Capital, borrowers can quickly identify the right loan terms for their unique CRE needs.
In need of small balance commercial real estate financing?
Contact AVANA Capital today to discover financing solutions that help your business grow.