A Guide to the Common Types of Commercial Real Estate Loans

Commercial real estate

Written by Bienvenu Mavakala

May 23, 2022

People investing in commercial properties are strategic investors who have proper business plans to execute on these properties.

Rental income is another profit real estate investors enjoy from these commercial properties. As businesses continue to invest in commercial real estate, different types of commercial real estate loans are surfacing to meet the needs of these investors.

In the following blog section, we are going to talk about the common types of commercial real estate loans.

Commercial Real Estate Loan:

Commercial real estate loans, also known as CRE loans, are secured by a right to keep possession of the commercial property as long as the debt is discharged. Commercial loans are different from residential loans, but just like normal loans, lenders are keen to provide capital to commercial real estate owners to regulate their financial requirements.

Benefits of a commercial real estate loan:

Whichever type you may opt for; a commercial real estate loan is beneficial for the financial stability of your business. It ensures better cash flow and allows you to make decisions with ease of mind. 

Investors go for commercial real estate loans to purchase more properties, expand their business, and revamp the existing ones. Whatever your purpose is, a commercial real estate loan can help you with increasing your fixed assets and hence overall improving your business revenue.

Common types of commercial real estate loans:

If you’re thinking of investing in a commercial property, getting a commercial real estate loan might be the first step towards your goal. Here are the different types of commercial real estate loans available-

  1. Permanent commercial loans.
  2. SBA (SBA a7 and 504) Loans
  3. Hard money commercial loan
  4. Bridge commercial loan
  5. Blanket loan for commercial real estate

Let’s look at each type in detail to study the benefits.

Permanent commercial loan:

A permanent commercial loan may sound like it is one that you’ll be needing to pay back forever but it is just a representation of a first-time mortgage payment for a commercial property. Commercial lenders offer permanent loans which are either on a fixed rate or variable rate.

The amortization schedule of a permanent commercial loan is said to be the longest as compared to all other loans available for borrowers in the commercial real estate world.

SBA Loans:

Small business administration loans cater to commercial real estate borrowers too. There are two main loan programs offered through this scheme, the SBA a7, and 504 loans. Even though you need to apply for the loan through a proper channel, an SBA loan provides the borrower with a guarantee which helps them with the loan.

SBA 7a is the most commonly used form of commercial real estate loan. The funds provided by this loan can be used for any purpose and the approval is pretty smooth and easy. Though it does require certain criteria for your company to fulfill to be able to get a 7a SBA commercial loan, this criterion is mentioned on the SBA loan website. 

If we talk about SBA 504 loan, it usually helps investors with fixed assets like buying a building for commercial purpose or renting it out commercially.

Hard money commercial loans:

Hard money commercial loans are easier to get as they don’t require much paperwork and documentation for proceedings. While getting a commercial loan you need to provide the lender with proof to ensure the repaying proceedings. In the case of a hard money commercial loan the lender is either a private company or provided by an individual who gives a loan as an investment itself.

Commercial borrowers use these loans further to generate profit and repay their debt. The only downside of a hard money loan is the interest rate. The interest rate in a hard money loan is comparatively higher. The timeline for repaying the amount is also comparatively shorter than other loan types.

Bridge commercial loan:

Bridge commercial loans are also sort of short-termed. As you’ll have to pay them back in a short period. Some people compare bridge loans to hard money commercial loans in terms of how they’re provided by private companies and individuals. Bridge commercial loans however are usually offered by financial institutions. 

Commercial loans are solely aimed to improve the cash flow of the revenue generated by a commercial property. Be it through improving its net worth by renovating a commercial building or refinancing the commercial property.

Blanket loan for commercial real estate:

If you’re looking into investing in more than one commercial property, a blanket loan might be best suitable for you. Blanket loans serve the borrower conveniently as there is one lender who provides finances for multiple properties. 

With a single lender for multiple commercial properties, a blanket loan gives the edge of having a single filing and documentation procedure and payment method for multiple properties.

Through a blanket loan, all your properties involved in the loan will be tied up and you might have difficulty selling one out of these multiple properties individually as they’re all tied up together.

How do you pick the right commercial loan for your business?

Now here comes the tricky part. As there are multiple options for commercial real estate loans, it can get hard for investors to pick on the best one for their business. 

There are a few key points that if kept in mind can benefit you in the long run with your commercial loan. The first step is to understand the difference between all the different types of commercial loans.

We’ve studied all the types in detail above and it is quite adamant that any commercial business owner who is looking for a loan to boost up finances for their business must have clear communication with the lender and know the terms & conditions of each type of commercial loan to make the best of it.


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