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Picking the right loan program for your business is crucial for the future of your real estate project, as well as the future of your business overall. It is important to make sure that when picking a loan, it fits your current situation’s needs. There are a lot of options available for types of commercial real estate loans, so it may be confusing where to start. It’s also important to know how these options work into planning a budget. To narrow down these options, you should keep in mind your needs. This will help indicate what types of commercial real estate (CRE) loans will work best for you.
The Small Business Administration (SBA) is an independent federal government agency that has several loan programs focused on helping small businesses grow by having access to the resources necessary for that growth. Two of the more prominent types of loans offered by them are SBA 504 and SBA 7(a) loans. Knowing which loan is best for your business relies on your needs as well as what the loan itself offers.
The SBA 504 loan program is typically for real estate improvements, such as any upgrades or upkeep. Purchasing long-term use heavy equipment is another way to use this loan. For real estate, the term length on an SBA 504 loan is 20 years, while equipment financing is 10 years. An SBA 7(a) loan differs in a few ways. They are also used for equipment or machinery, and have a term that varies between 7 and 25 years. This term length depends on how the loan is used. It is also typically used for smaller balance loans.
Another type of CRE loan available is a construction loan. This type of loan tends to be used for businesses looking to expand on property, such as retail or office spaces intended for multi-use. This is a uniquely structured loan through AVANA capital. They are typically structured to give the business 2 years before monthly principal payments factor in. Construction loans tend to be short-term. AVANA Capital structures construction loans under the SBA 504 program, and they thus need SBA authorization prior to their closing.
Bridge loans are a unique type of commercial real estate loan. They are meant for businesses that need to act in a specific time frame. One example of how this loan can be used is when purchasing distressed property. Due to the short timeframe available in purchasing the loan, the bridge loan is structured around that need.
Hard money loans provide quick funding, often for properties requiring significant improvements. These loans are based on the property’s value rather than the borrower’s credit, and they feature high interest rates and short repayment terms. Hard money loans are particularly useful for investors engaged in fix-and-flip projects or those with limited access to traditional financing options.
Mezzanine financing in real estate is a hybrid financing option used to fill gaps between primary financing and equity. These loans typically carry higher interest rates and are often structured as a combination of debt and equity. Mezzanine loans are an excellent choice for businesses seeking additional funding to close large commercial deals.
Securing a commercial real estate loan involves several steps. Here’s a roadmap on how to qualify and apply for a commercial real estate loan.
Determine the type of property you’re financing and your intended use. Are you buying, building, or renovating? Understanding your goals will help you choose the right loan product.
Lenders will assess your credit score, business financials, debt-to-income ratio, and cash flow. Ensure your records are up-to-date and present a strong financial case.
Include details about the property, your business strategy, market analysis, and financial projections. A solid business plan demonstrates your ability to repay the loan.
Identify lenders specializing in commercial real estate, such as traditional banks, credit unions, SBA-approved lenders, or private lenders. Each has unique terms and criteria.
Common documents include tax returns, financial statements, property appraisals, and proof of income. Check with your chosen lender for a complete list of requirements.
Complete the loan application process, ensuring all documentation is accurate and comprehensive. Be prepared for questions or additional requests from the lender.
Once approved, review the loan terms carefully. Negotiate interest rates, repayment schedules, and fees to ensure they align with your financial goals.
After agreeing to the terms, complete the closing process. Ensure you understand all conditions and obligations before signing.
Once you have chosen the type of loan you need, it can still be too confusing to proceed smoothly. AVANA Capital has a plethora of resources available, such as information on SBA 504 loans and an easy-to-navigate loan builder form on the same page. Submitting this form sends your information to our team of industry professionals in under 10 minutes. Our team specializes in helping small businesses go through the steps of these loans with you so that you fully understand what you will receive from each type of loan. We also provide loans that allow you a long-term repayment schedule (SBA 504) or start construction before principal payments are due (Bridge).
Get in touch with AVANA Capital and our team, dedicated to helping small businesses achieve the resources they need, today. We provide you with the critical information necessary to choose a type of commercial real estate loan that fits the needs of your business, as well as unique loans made to help your business grow.
To get more information on types of commercial real estate loans, contact AVANA Capital. One of our industry professionals can provide you with the information you need to guide you to the right type of commercial real estate loan that fits your project’s needs.