Commercial Real Estate Loans for Business Property

Commercial real estate loans help businesses buy, improve or invest in commercial property, including raw land, income-producing property and property with existing structures in need of renovation. A variety of loans are available for your business depending on your specific needs.

Small Business Administration 504 Loans

The U.S. Small Business Administration has a special loan program, commonly called the SBA 504 Loan Program, that includes commercial real estate loans for specific uses.

An SBA 504 loan can’t be used for any investment or speculative purpose. But you can use it to purchase a fixed asset, including a commercial building in which to operate your business. These types of commercial real estate loans are fixed-rate, long-term loans.

Your business must have a net worth of less than $6 million and less than $2 million in annual profit. You must also have a good credit rating. SBA 504 loans also typically require only a 10 percent down payment, as opposed to the customary 20 percent for bank commercial real estate loans.

Bridge Loans

Traditional lenders offer bridge commercial real estate loans. These are short-term loans that allow a business to purchase an investment property and prepare it to produce income. The income from the property then becomes the basis for replacing the short-term note with a long-term loan. Bridge loans typically come with higher interest rates.

Construction and Rehabilitation Loans

Your bank’s commercial real estate loan division will offer special financing to build income-producing structures on your commercial property. This is a type of loan that can replace a bridge loan. Similarly, if you purchase property with buildings on it in need of improvement, there are commercial real estate loans for rehabbing your structures.

Acquisition Loans

Commercial real estate loans also include lending vehicles structured to let you acquire existing, income-producing commercial property.

These will include non-recourse loans in which the acquired property is put up as collateral for the loan. In non-recourse loans, you are not personally liable for the debt. If the loan should go into default, the lender owns the purchased property.

Commercial Property Refinance Loans

A variety of factors can make refinancing commercial real estate loans attractive. In a refinance loan, a new loan pays off an existing loan. The new loan should have a lower interest rate or loan terms that allow for lower monthly payments. Refinance loans can be used to replace short- and long-term loans.

Often, a business must accept higher interest rates in the acquisition, construction or renovation stage of a commercial real estate project. Once the property is producing income, refinance becomes and attractive option.

Similarly, a change in market conditions or your improvement of a property can raise the market value of the property or raise the income from the property. This can improve the loan-to-value ratio or the debt coverage ratio of the project, respectively. If either of these ratios improve, a lender will consider commercial real estate loans with lower interest rates.