Navigating The Landscape Of Commercial Mortgages: A Guide To Various Types

Finance & Money Blog

Commercial mortgages play a crucial role in financing the acquisition or refinancing of commercial properties, including office buildings, retail centers, and industrial spaces. Unlike residential mortgages, these loans are for businesses, investors, and developers. There are many types of commercial mortgages.

Traditional Commercial Mortgages

Traditional commercial mortgages, offered by banks and credit unions, are the most common type of commercial mortgage. These loans are secured by the commercial property itself and have flexible lengths. 

Interest rates for traditional commercial mortgages are usually based on the prime lending rate plus a margin, which varies depending on the borrower's creditworthiness, the property's location, and other factors. These are the most like home mortgages, except they're for commercial properties.

SBA Loans

The Small Business Administration (SBA) offers two commercial mortgage programs to assist small businesses in financing the purchase, construction, or renovation of commercial properties: the SBA 7(a) Loan and the SBA 504 Loan. Both programs are partially guaranteed by the federal government, which reduces the risk for lenders and often results in lower interest rates and more favorable terms for borrowers.

The SBA 7(a) Loan program is designed for general-purpose commercial financing, including property acquisitions and refinancing, while the SBA 504 Loan program specifically targets commercial property purchases, new construction, and major renovations. 

To qualify for an SBA loan, borrowers must meet certain eligibility requirements, such as size standards, business type, and financial metrics. For those who qualify, an SBA loan can be the most financially attractive option. You may have to jump through some extra hoops that the SBA puts in place, but the extra hassles could literally pay off.

Conduit Loans

Conduit loans, also known as commercial mortgage-backed securities (CMBS) loans, are a type of commercial mortgage provided by financial institutions that specialize in pooling and securitizing commercial loans. 

Conduit loans are typically non-recourse, meaning the borrower is not personally liable for the debt, and are secured by the commercial property. These loans often feature competitive interest rates and longer terms but may have higher fees and less flexible terms compared to traditional commercial mortgages.

Hard Money Loans

Hard money loans are short-term, asset-based commercial mortgages offered by private lenders. They're based on the value of the commercial property and the borrower's equity, more than the borrower's creditworthiness. Many house flippers use hard money loans.

Short-term hard money loans are helpful if you require quick financing, or seek a temporary solution while securing long-term financing. For more information on mortgage loans, contact a professional near you.


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Budgeting For Real Life

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