Whether you're looking to acquire rental property, renovate an existing one or expand your real estate investment portfolio, there are various options for business financing. Sources include traditional banks, credit unions, and private and portfolio lenders.
A common option for commercial real estate financing is owner-occupied commercial real estate (OOCRE). OOCRE loans allow you to purchase and occupy a space that is used for your company's business operations. This type of financing is a good choice for businesses that want to reduce operating constraints and increase cost stability.
Commercial Real Estate Loans
Commercial real estate loans are typically used to finance property that’s used by businesses, and they come in many forms. They can range from a lump sum of capital that you repay over regularly timed instalments, to blanket loans that cover the purchase of multiple properties at once.
The first type of loan is a term loan, which provides a lump sum of capital you can pay back over a set period of time. These loans are the most common type of business loan and they can be a good choice for investors looking to buy an income-producing property. commercial mortgage calculator
However, they have their limitations and are generally not suitable for financing large purchases or relocating a business from one location to another. This is because they don’t allow you to make early repayments or pay off the entire loan before its maturity date.
In addition to interest rates, these types of commercial real estate loans often have other fees and penalties. They may include prepayment fees, which are designed to preserve the lender’s profits, and an interest guarantee, which entitles the lender to a certain amount of interest even if you repay your loan earlier than expected.
Getting approved for a commercial mortgage can be difficult. You’ll need to prove that your business is stable enough to support the loan payments. This is done by submitting financial statements and banking records from the past 3-5 years. It’s also important to demonstrate that your business has a strong credit history and a solid net operating income.
Lenders typically look at the debt-to-value ratio when evaluating commercial mortgages. This is the percentage of the value of the property that you’re borrowing compared to its appraised value or its purchase price – whichever is lower. The higher the LTV, the more risky you appear to lenders.
If you’re planning to purchase a commercial building, it’s best to aim for an LTV of no more than 70%. This can help you qualify for the most competitive financing rates.
The loan-to-value ratio is also a good indicator of your ability to service the mortgage payments. Using this ratio, you can determine whether your commercial property will be able to pay the loan back in full.
Term Loans
Term loans are a common form of business financing that can be used for a wide variety of purposes. They can be used to buy real estate or equipment, expand a business, and pay for working capital.
These loans can be issued by banks, credit unions, or online lenders. The type of lender you choose will depend on a number of factors, including the amount you need, your credit score, and your financial history.
A business term loan typically comes with a fixed interest rate and a set payment schedule. This makes it easy to budget for monthly payments and ensures that you have consistent cash flow.
They can also be used for more permanent business growth, such as purchasing a new location or buying inventory. If you’re looking for a long-term investment in your company, a term loan may be the best option for you.
Unlike hard money loans, a term loan is based on your business’s credit and collateral. This means that the bank will vigorously check your financial history and take a lot of security in order to make this loan.
While this is a riskier loan type, it can be useful for situations where your company is struggling to generate income. As long as you’re making repayments on time, it can help to increase your business credit score and increase your chances of finding more affordable financing in the future.
The best way to shop for a business term loan is to compare rates and terms from several different lenders. This is especially true if you’re looking to get a large amount of money.
To apply for a term loan, you’ll need to submit a variety of paperwork. This includes your business’s financial statements and tax returns, as well as your personal and business credit scores. You’ll also need to sign a personal guarantee, which protects the lender in case you fail to make your payments.
Getting a business term loan is a big step toward expanding your company and boosting your bottom line. Taking the time to do your research and find a lender that can offer you the best terms can make all of the difference in the world.
Hard Money Loans
If you are a property business owner, hard money loans can be an excellent source of funding. These types of financing allow you to get the funds you need to buy properties, renovate them, and sell them at a profit.
Hard money lenders are private investors who offer financing to borrowers for real estate projects. These lenders don’t have the same regulations as banks, so they are more flexible with their lending decisions. The lender can often give you more leeway with terms, and they may also allow you to use your personal assets as collateral for the loan.
They can be more expensive than traditional mortgages, but they are generally easier to qualify for and faster to secure. They may even be able to fund a property within weeks, which can save you time and energy.
You can find hard money lenders by asking a realtor in your network or searching online for local real estate investment groups or forums. You should always make sure to read reviews and check the legitimacy of any hard money lender you consider working with.
Hard money lending is a good choice for property business owners who want to invest in real estate quickly and efficiently, but it also comes with its own risks. The lender will need to be confident that you have the experience and skills to successfully manage a property investment, as well as the financial resources to pay off the loan.
The lender will also need to be comfortable with the amount of risk involved in the deal, as they are taking on the potential loss if you fail to repay the loan. If you are not careful, a hard money loan can become a serious financial burden on your business.
Another benefit of hard money loans is that they don’t require a lot of documentation to qualify. In contrast, with conventional mortgages, you have to provide bank statements, tax returns, and income documentation. These can be overwhelming and take up a significant amount of your time.
In addition, a hard money loan can be more affordable than a conventional mortgage if you have an established track record of property ownership and sales. It can also be a good choice for property business owners who don’t have access to traditional sources of business capital, such as savings or retirement accounts.
Portfolio Loans
If you're a property business investor, portfolio loans can help you secure financing for your project. They're usually more flexible than conventional loans because they don't require strict underwriting standards set by government-sponsored entities, such as Freddie Mac and Fannie Mae.
This makes them a great choice for borrowers who have a poor credit history or other factors that prevent them from getting approved for conventional mortgages. They also offer more flexibility with terms, allowing borrowers to avoid the costly requirements of conforming loans.
However, portfolio loans do come with higher interest rates than other types of commercial real estate financing. These rates are designed to cover the additional risk that portfolio lenders take when they lend money to borrowers who can't qualify for other types of financing.
The interest rate you end up paying for a portfolio loan depends on your credit score, property type, loan amount and loan to value. The higher your credit score, the lower the rate you'll end up with.
A lender can also charge you prepayment penalties, which is a fee that they can collect from you if you pay off your loan early. These fees can be expensive, so you should always shop around for the best rate and terms on your portfolio loan.
Depending on the property you're buying, you may also have to pay for inspections and appraisals. These can add to your total costs, but they're worth the extra time and effort for a quality investment.
Portfolio loans are also commonly offered by smaller banks, credit unions and community banks. The lender may not be a large bank, but they are typically more willing to make loans to real estate investors.
You can combine a portfolio loan with other types of business financing, such as an SBA loan or a small business loan. These types of loans can be an excellent way to finance your entire property business.
You'll need to build rapport with your lender before you can be approved for a portfolio loan. This will help your lender get to know you and your financial situation better, which can make the approval process easier.