Commercial Real Estate Financing
Buying commercial real estate for your business is a big financial decision and a crucial part of your company’s venture. It’s a major step towards a thriving future for your organization.
You may be purchasing the real estate for one of the many reasons; you might be looking to build a workplace, company quarters, warehouse, or anything else directly or indirectly tied to your business activities. No matter the reason for your purchase, you would probably need a loan to finance it. And that’s where commercial real estate financing comes in.
As a borrower, you have quite a few options to choose from. In this article, we discuss the top ones that could be suitable for your needs.
Let’s dive in.
Just like how the Federal Housing Administration guarantees loans for housing projects, U.S. Small Business Administration (SBA) guarantees commercial loans for small businesses. However, the SBA doesn’t give you the loan directly, it just backs you up when you borrow from a commercial lender.
SBA offers two programs for commercial real estate financing.
SBA 7(a) Loans
It’s the most common SBA program used by many U.S. organizations. Before you can take a 7(a) loan, you have to be eligible for it; you can check the eligibility criteria on SBA’s official website. Some of the factors that could decide your eligibility are your business’s credit history, area of operation, and income report.
SBA 504 Loans
The 504 loans are a great way to acquire fixed-rate assets, like existing pieces of land or buildings, through fixed-rate financing.
Just like how companies have to be eligible to take the 7(a) loan, they have to pass eligibility criteria for the 504 loan as well. Some of the criteria are, you have to have a solid business idea, you must be qualified as a small business, and you should have management experience.
However, there’s a difference between 7(a) loans and 504 loans when it comes to funding sources. Almost all the funds come from a private lender in a 7(a) loan. On the other hand, only 50% of the funds are taken from a private lender in a 504 program. 40% comes from a nonprofit Certified Development Company (CDC), and 10% is contributed by the borrower itself.
Fix & Flip Loans
If your business revolves around purchasing and selling real estate for a profit, fix & flip loans might be a suitable fit for your needs.
A fix & flip loan is a short-term loan, which you can borrow to temporarily purchase a household or commercial building. After the purchase, you renovate the building, resell it for a better price, repay the borrowed money to the lender, and keep the profit.
If your business model is all about purchasing properties and renting them to different individuals for income, a rental loan might be ideal for you.
A rental loan does exactly what it sounds like: it lets you lend money from a lender to purchase a property, which you can rent to other people for income.
Purchasing real estate could be your organization’s next, big business step. So, you have to make sure you’re lending money the right way to take that step.
This article talks about the top 3 real estate financing options that could be ideal for you.