Vanta Commercial Lending

Important Things You Need To Know About Commercial Loans

Even if you can earn an income from a specific property, not every aspect involved in real estate may be considered to be “commercial.” It is also noteworthy that real estate bridge loans have not been specially designed for road extension construction, but instead as a physical bridge that may be inserted as part of a construction loan. You might be wondering about blanket loans. Ultimately, they are not all that warm.

There are even more convolutions in play. In fact, there are many different versions of commercial property loans that are available as there are categories of commercial real estate. This causes a great deal of confusion. Allow us to guide you through all of the various kinds of commercial real estate loans, and to discuss the dos and don’ts in order to be considered as a profitable property to banks or lenders.


What Are The Different Kinds Of Commercial Real Estate Loans?

1. Fixed-Interest Long-Term Commercial Mortgage

Traditional commercial real estate loans from banks or lenders work in similar ways to home mortgages but come with shorter terms and have broader uses. Instead of a 30-year loan repayment schedule being offered, these real estate loans rarely have longer than a 20-year repayment schedule. In fact, a majority of these loans fall within a 5 to 10-year repayment schedule. This kind of loan requires a 700 or higher personal FICO credit rating, one year in business, and a 51% occupancy at least of the property by the company’s owner.    

The interest rates with this kind of real estate loan usually range from 4.75% up to 6.75% and have a variable option. That means the interest rate may either move up and down depending on trends in the real estate market. When a fixed-rate real estate mortgage loan is used, the interest rate and payment schedule stay stable.  

2. Interest-Only Payment Loans

Also referred to as a “balloon loan,” an interest-only payment loan is used often by companies who expect large payouts in the future. Payment schedules use smaller amounts of interest with the bigger “balloon” payment that is scheduled for payment when the agreed-upon terms end, frequently between 3 to 7 years. This kind of loan is often used by companies when building up or constructing a commercial property since it is useful for refinancing as a lump sum at the end of the term.

3. Commercial Refinance Loan

This type of loan is similar to home mortgages in many ways. Company owners have a tendency to opt for commercial real estate loans that have lower interest rates. When refinancing a loan, there are typically additional fees and costs involved; however, often they are minimal compared to the savings achieved from a low monthly payment. As a consequence, refinancing may increase a company’s profit flow either through improving properties or expanding its commercial real estate.

4. Hard Money Loans

Although banks offer many different types of financing, a hard money loan can only be secured from private investors. The investors that provide these loans do not focus on the borrower’s credit score. Instead, they look at the commercial property’s value and take the appropriate lending risk. Since they are short-term loans with fast payments required, the interest rates on those loans have a tendency to be quite high. In addition to the upfront fees, interest loans often run from 10% to 18% over a six to 24-month time period. Property investors who focus on house flipping have a tendency to really like these loans.

Similar to home mortgages, owners of companies have a tendency to take out commercial real estate loans that have lower interest rates. When refinancing their loans, there are typically additional fees and costs that are involved. However, they tend to be minimal when compared to the savings achieved from low monthly payments. As a consequence, refinancing may increase a company’s profit flow either through improving properties or expanding their commercial real estate.

5. Bridge Loans

In many ways, bridge loans have similarities are hard loans. However, the interest rates have a tendency to be lower and the terms have a tendency to be longer. Interest rates are commonly 6% to 9% with terms up to three years. Typically, loan applicants need to wait until their loans are approved prior to receiving their funds. That tends to take 15 to 45 days. To secure this type of loan, usually, banks will require applicants to have a 650 minimum credit score, along with the funds needed for a 10 to 20% down payment. Short-term investors commonly use bridge loans for covering the cost of remodeling and construction work prior to refinancing.

6. Construction Loans

This type of loan is used to cover the expenses that come with constructing commercial structures, like retail shops, offices, rental units, and industrial buildings. Typically, the funds cover the cost of materials and labor. If an investor has bought undeveloped land they want to build on, it may be used as collateral. Another option is to use building materials as the collateral for a loan. A construction loan typically has terms lasting from 18 to 36 months. Once the loan ends, usually applicants transition into a mortgage that has a longer term.

7. Blanket Loans

This type of loan is used for covering the costs that are associated with constructing commercial structures, like retail shops, offices, rental units, and industrial buildings. This type of loan is used for covering the costs associated with constructing commercial structures, such as retail shops, offices, rental units, and industrial buildings. Typically the funds cover the cost of materials and labor. If undeveloped land has been purchased by an investor for building on, it may be used as collateral for a loan. Another option is to use the building materials as collateral. Construction loans typically have 18 to 36-month terms. Once the loan has come to an end, applicants will usually transition over to a mortgage that has a longer term.

The Commercial Real Estate World

Commercial real estate is a term that is used for describing any kind of land, building, or structure that may be used as an income stream. In general, buildings, where the owner’s business has a higher than 50% occupancy rate, has a better chance of qualifying for a loan, since the bank can tell that the loan applicant has a very strong investment in their property. Keep reading to learn more about which types of properties are considered to be part of the commercial real estate world.  

Apartment Buildings

Townhouses, condominiums, and apartments are only characterized as commercial real estate when there are over five living units in the building. Properties with four units or less are not classified as commercial buildings. Personal loans may be used to buy them.

Office Buildings

When office buildings are in urban areas, they have a tendency to be fairly expensive but also in high demand. As you move further away from urban areas, you fill tend to find lower prices. In certain situations, startup companies might choose a building that is away from urban areas in order to lower their expenses.

Retail Structures

There are different kinds of retail structures. They include standalone shops, regional malls, which are home to multiple anchors and many shops, and strip malls, which tend to house an anchor retailer and several smaller businesses.

Medical Buildings

There are various kinds of medical buildings, which include surgical centers, nursing homes, urgent care centers, hospitals, and doctor’s offices. These facilities offer various medical services.

Warehouses And Industrial Buildings

These structures are typically located outside of major cities in places where it is easy to transport and access materials and products. These facilities may be used in numerous ways, including for multiple purposes, storing goods, heavy manufacturing, and light assembly.

Hotels And Resorts

This is a very large category. It includes large hotels with amenities, small hotels, luxury resorts, independently-owned ins, extended-stay facilities, casinos, and major chains. A great deal of paperwork is required by these buildings and there are many regulations that must be followed, which makes them less than ideal for new commercial property investors.

Land Developments

For commercial real estate investors, one popular option is land development. The process involves transforming undeveloped land into an area that can be used in the future for construction. Typically this kind of property requires only a small investment upfront, with the potential for massive returns.

Other Commercial Loans

Many people use the terms “commercial real estate loans” and “commercial loans” interchangeably. Sometimes individuals are discussing working capital while other times they are talking about a loan for actual physical property. As you are learning more about commercial loans, it is important to be aware of the distinctions.

Term Loans

This is one of the more common kinds of business mortgages. Whenever someone applies for a term loan, they are looking to borrow a sum of money that is then paid back over a certain period of time. The loan terms can vary. There are short-term loans that many last for just three years. Then there are other loans that have a longer duration. These loans may last for over 20 years. No matter what the loan’s terms are, there will be a predetermined payment schedule where the borrower makes payments on a monthly basis. It may be difficult to qualify to get a standard term loan from many banks if you have credit problems. However, online lenders and marketplaces usually have more relaxed standards which can make it easier to qualify for a term loan. 

Business Credit Lines

Typically a business credit line functions in a similar way to a credit card. The company can draw the money it needs for the business at will. Assuming the borrower has not used all of their available credit up, they will have funds available to use to cover emergency expenses, buy equipment, or make investments. The best part is that these funds can be accessed without needing to go through a long loan process. A credit line is a good fit for businesses that have ever-changing needs.

Government Business Loans

A small business loan can be potentially secured from the U.S. government. The Small Business Administration is a government division. There are many different kinds of SBA loans that are available, and the interest rates on the loans have a tendency to be lower than most other places. The SBA offers loans through banks and guarantees that these loans will be repaid.


There are loans available for all different types of commercial real estate ventures. Due to online lenders, in fact, borrowers today have many more ways of securing capital than they did previously. Since an owner-occupied commercial property may serve as collateral, interest rates on those loans have a tendency to be lower than almost any other kind of business loan. They are a great option for small business owners looking to get started with these types of investments.

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