Jump to Navigation

What kind of commercial real estate loan do I need?

There are many different types of commercial real estate loans available and each has a very unique intended purpose.

Anyone who has started or wants to start a business in Arizona may well need to buy property on which to build a new building. They may wish to purchase an existing building and retrofit it to meet their needs. These are some situations in which a commercial real estate loan may be sought.

But, before an entrepreneur marches into a bank to ask for a loan, it is important to have an understanding of the different types of commercial real estate loans available.

Temporary loans for very specific situations

As explained by The Balance, there are two special forms of loans available for commercial real estate purposes that are intended to give people an infusion of cash for a very short period of time.

One is a hard money loan. These are offered by private lenders who are not typically bound by the standards and requirements that other lenders must abide by. As such, they can offer money to people in situations that may not otherwise be able to get it. In exchange, the interest rate for this type of loan is generally quite high.

Another temporary loan is a bridge loan. Again, this loan is available from private lenders and is sought by people who are in need of immediate funds while they wait for their longer-term funding to be available. The term "bridge" refers to this gap that is being covered.

Loans for multiple parties

If one person does not have sufficient credit with which to get a commercial real estate loan, they may apply for a joint venture loan with another person. This loan sees both parties sharing in the profit and the loss associated with the loan. Investment firms and private investors typically offer this type of financing.

Shared benefit for the lender

For retail or office buildings with long lease holders, sometimes a participating mortgage is used. In addition to paying the lender the mortgage and interest, borrowers also pay the lender a share of the business earnings.

Standard commercial real estate loans

Available with fixed rate or adjustable rate options, these loans follow a standard mortgage protocol but for businesses. Each lender may have its own requirements. Bank of America, for example, offers purchase or refinance loans for up to 80 percent of a property's value. This loan amount will include any closing costs or other fees.

Selecting the right loan

When evaluating the need for a commercial real estate loan, Arizona entrepreneurs or business owners should always work with an attorney. Any loan agreement is a binding legal contract and making sure the business interests are properly protected is important.