Different Kinds of Commercial Real Estate Mortgages

When purchasing commercial real estate, most people cannot afford to do so outright. After all, it can cost hundreds of thousands or even millions of dollars. Most investors or hopeful business owners turn to real estate mortgages to help them secure a property. There are several types you should know about before you decide to enter the market.

Types of Commercial Mortgages

There are several types of commercial real estate mortgages. To determine which one is right for your business or investment needs, it helps to understand the differences between them:

  • Bridge Loan – A short-term loan meant to act as a “bridge” between short-term needs and long-term financing, bridge lending usually has higher rates and last for about two years.
  • Cash Out – Cash-out financing is another term for refinancing. It involves cashing out the equity on a current property’s mortgage or taking cash from a property’s equity if it doesn’t have a mortgage that can be refinanced.
  • Construction – Construction loans are available for business owners or investors that are building from the ground up.
  • Fix-and-Flip – Fix-and-flip loans are useful for investors who own single-family homes, apartment buildings, or larger real estate developments. These loans are used for renovating and reselling properties.
  • Hard Money – Available for short-term needs, hard money loans come from private or institutional lenders. This financing is secured based on the value of the commercial real estate.
  • Purchase – These types of loans are available for people who wish to purchase property to use for their business or as an investment. Purchase loans involve working with traditional lenders in nearly all cases.
  • Refinancing – If you already have a mortgage, you may need to refinance it. These loans allow you to take out a new loan in order to pay off an old one. This loan usually has a lower rate than the original one. Some people use a second mortgage to invest or to purchase other things their business needs as well.

The interest rates you pay, the time you have to repay, and time it takes to receive your funding all depend on the type of commercial real estate loan you secure. Whether you choose a bank loan, institutional loan, SBA loan, or USDA loan, expect interest rates of 5-15%. You’ll usually have about 20-25 years to repay the loan, and funding is available in as few as 7 days or as many as 60.

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