Real Estate Financing: Finding a home for your business

Every business, no matter how large or small, needs a home. Whether in retail or in manufacturing, location is essential to the success of a company. However, financing for commercial real estate is different than other types commercial lending. So understanding the different types is essential to securing the best financing for your needs.

Commercial Real Estate Financing for the Short Term

There are multiple types of financing. Each loan will work for a different need, with a specific focus on providing a company with the proper amount of funding for each type real estate purchase. The different types of short-term lending options include Acquisition, Development, Construction, Bridge and Hard Money Loans.

Acquisition loans are used to purchase an existing property, or the land a property will be built on. These are similar to the loans a bank will give for residential real estate purchases, however, they will have a shorter repayment period. 

Land development loans are used to develop plots of land prior to construction, which can focus on the implementation of roads, power lines, water connections, or clearing the area of underbrush or other hazards. Development can be a costly procedure, however, it is essential for construction. These loans help to shoulder the burden of preparing the land while allowing the owner to focus on making sure everything moves efficiently. 

Construction loans are for the actual process of building a structure. They can also be used to improve or expand existing structures. Construction loans can be used to pay for fixed assets like interior or exterior improvements, street improvements, utilities, parking lot construction or repair and landscaping. Additionally, Construction loans can be used for the renovation of an existing structure, and not just the creation of a new one. 

The final two short-term lending options, Hard money, and Bridge loans are used to supplement the existing loans. A Hard money loan provides the borrower with cash to use in any way they like.  Due to their nature, a Hard Money loan uses collateral, rather than credit, to ensure the loan.

A Bridge loan is used to bridge the gap between a short-term loan and approval of a long-term one. This may be hard money or a short-term loan, generally around 3 years in length. These loans are provided to help the borrower with cash flow until a long-term loan agreement is approved. 

Commercial Real Estate Loans for the Long Haul

Closer to residential lending, long-term, or permanent real estate loans, have a longer pay off period, often spanning decades. They are used to pay off short-term lending and allow the borrower to focus on building the business, not building the property.

A great source for Small Business to find loan opportunities is the SBA or Small Business Administration. These loans are backed by the government to provide a secure lending opportunity to business who may not be considered for other lending sources. An SBA 7(a) Loan provides up to 90% financing, with low down payment requirements for business owners looking to purchase a multi-use space. 

How to tell which type of lending is right for you:

What does your company do? What type of amenities will it need? Can it grow in its existing location, or will it need to build new infrastructure?   

An acquisition is better for company’s looking to purchase land or an existing building for further development. Development is better for companies that already own a building or property and need to improve or develop it. Construction is best for companies that need to build a new facility on already owned land. Bridge helps bridge the time between completion of a project and approval of a long-term payment plan.  Each loan will work best for a different need, and figuring out which will work for you is part of the process of applying for a loan.

In order to understand what type of loan is right for you, it will be important to figure out what the business’s exact needs are. After those are known it will be a matter of determining what the best payment options and lending sources are for the borrower’s unique situation. This is where commercial loan broker can help.  A broker can help you navigate the often-confusing world of commercial real estate lending, and can even help with connections for real estate agents. If you need assistance with a commercial real estate loan we can help.