If you're in the market for a loan to purchase or refinance commercial property, a commercial mortgage loan may be just what you need. But what exactly is a commercial mortgage loan and what options are available? In this article, we'll break down the basics of commercial mortgage loans and explore the different options available to borrowers.
What is a Commercial Mortgage Loan?
A commercial mortgage loan is a type of loan that is used to purchase or refinance commercial property. Commercial property can include a wide range of real estate, such as office buildings, retail spaces, warehouses, and industrial facilities. Commercial mortgage loans are typically secured by the property itself, which serves as collateral for the loan.
Commercial mortgage loans are different from residential mortgage loans in a few key ways. For one, commercial mortgage loans tend to have higher interest rates and shorter repayment terms than residential loans. This is because commercial properties are often considered riskier investments than residential properties. Additionally, commercial mortgage loans are typically underwritten based on the income and cash flow of the property itself, rather than the borrower's personal income and credit history.
Types of Commercial Mortgage Loans
There are several different types of commercial mortgage loans available to borrowers. The type of loan that is best for you will depend on your specific needs and circumstances. Here are some of the most common types of commercial mortgage loans:
1. Traditional Commercial Mortgage Loans - These are standard loans that are offered by banks and other lenders. They typically have fixed interest rates and repayment terms of 5-20 years with 25-30 year amortization schedules. Interest only options are available as well which help lower your monthly commercial mortgage loan payment.
2. Small Business Administration (SBA) Loans - The SBA offers a range of loan programs to help small businesses, including the SBA 504 and 7(a) loan programs. SBA loans have longer repayment terms and lower down payment requirements than traditional loans.
3. Hard Money Loans - These are short-term loans that are secured by the property itself, rather than the borrower's credit history. Hard money loans typically have higher interest rates and fees than traditional loans.
4. Bridge Loans - These are short-term loans that are used to bridge the gap between the purchase of a new property and the sale of an existing property. Bridge loans typically have higher interest rates than traditional loans.
5. Construction Loans - These are loans that are used to finance the construction of a new commercial property. Construction loans typically have higher interest rates and shorter repayment terms than traditional loans.
Choosing the Right Commercial Mortgage Loan
When choosing a commercial mortgage loan, it's important to consider your specific needs and circumstances. Some factors to consider include the size of the loan, the length of the repayment term, and the interest rate and fees associated with the loan. It's also important to work with a lender who has experience in commercial lending and who can guide you through the process.
In conclusion, a commercial mortgage loan can be a valuable tool for those looking to purchase or refinance commercial property. By understanding the different options available and choosing the right loan for your needs, you can secure the financing you need to achieve your business goals.
Working with a team that help you navigate the process and determine which option is better for you based on your goals and strategy can save you time, money and headaches.