Just as there are different types of residential loans, there are different types of commercial loans that you should consider when financing your commercial real estate purchase, including conventional commercial mortgage loans, commercial balloon loans, commercial bridge loans, commercial hard money loans, commercial blanket loans, and commercial construction loans.
1. Conventional Commercial Mortgage Loan
A conventional commercial mortgage loan is similar to a conventional residential mortgage loan as it involves a fixed interest rate and a long term. That being said, the terms are shorter than those offered for residential mortgages -- often ranging between five to ten years. You will be required to put down at least 25% for this type of loan and interest rates typically range from 4% to 7%.
2. Commercial Balloon Loan
A commercial balloon loan is structured so that you only make monthly payments to cover the cost of interest rather than interest and principal. While you will have lower monthly payments with this type of loan, you will end the loan term with a large balloon payment to cover the rest of the remaining balance. These loan terms are quite short -- typically ranging between three to seven years.
3. Commercial Bridge Loan
A commercial bridge loan is a unique financing solution that provides you with quick access to the cash you need to make a time-sensitive commercial real estate purchase. These loans are designed to provide you with short-term financing until you can secure permanent financing. Since these loans are short-term, they usually need to be repaid within one year. Their interest rates range between 6-12%.
4. Commercial Hard Money Loan
A commercial hard money loan is an alternative lending solution that is given based on the value of the property rather than the creditworthiness of the borrowing entity. Since these loans come with high interest rates ranging from 10% to 18%, they should be repaid as soon as possible -- within months instead of years.
5. Commercial Blanket Loan
A commercial blanket loan allows businesses to combine multiple different properties into a single loan. This is a more convenient and flexible financing solution. However, they’re also risky, complicated, and difficult to get since not many lenders offer them.
6. Commercial Construction Loan
A commercial construction loan is used to cover the costs of building commercial structures like office parks, shopping plazas, warehouses, and apartment complexes. This type of loan allows you to use the undeveloped land as collateral. Commercial construction loans usually lead into a long-term mortgage after a term of one to three years.
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