What Is a Commercial Real Estate (CRE) Loan?

A commercial real estate loan is a mortgage secured by a lien on commercial property as opposed to residential property. Commercial real estate (CRE) refers to any 🎉income-producing real estate that is used for business purposes; for example, offices, retail, hotel💟s, and apartments.

Understanding Commercial Real Estate (CRE) L𒐪oans

A CRE loan might be sought by small businesses seeking to purchase, expand, or renovate their sites. CRE loans are generally made to investors such as corporations, developers, partnerships, funds, trusts, and 澳洲幸运5开奖号码历史查询:real estate investment trusts or REITs.

In other words, business entities formed for the specific purpose of owning and operating commercial real estate. The business entity purchases commercial property, leases out space, and then collects rent from the businesses that operate wi꧅thin the property. The financing for the venture, including the acquisition, development, and construction of these properties, is accomplished through commercial reaꦇl estate loans.

As with residential property, banks, independent lenders, 澳洲幸运5开奖号码历史查询:pension funds, insurance companies, private investors, and other capital sources, such as the 澳洲幸运5开奖号码历史查询:U.S. Small Business Administration’s 504 Loan Program are actively involved in providing CRE loans. Like residential lend෴ers, commercial lenders assumꩲe different levels of risk and have different terms they are willing to offer to borrowers.

The most popular residential loan is the 30-year fixed-rate mortgage, CRE loans are typically shorter. The terms range from 5 years (or less) to 20 years, and the 澳洲幸运5开奖号码历史查询:amortization period is often longer than the loan term. For example, a lender might provide a CRE loan with a term of 7 years and a 30-year amortization. The borrower makes monthly payment⛎s during the seven years. The monthly payments are determine𓆏d as if the loan were being paid off over 30 years followed by one final “balloon” payment composed of the entire remaining balance on the loan.

Lenders consider the nature of the collateral (the property being purchased); the creditworthiness of the entity (or principals/owners), including three to five years of financial statements and income tax returns; and financial ratios such as the 澳洲幸运5开奖号码历史查询:loan-to-value ratio and the 澳洲幸运5开奖号码历史查询:debt-service coverage ratio when evaluating CRE loans.

CRE loans tend to be more expensive than residential loans. Down payments typically range from 20% to 30% of the purchase price. Interest rates also tend to be steeper: around 10% to 20% for most borrowers. Loans backed by the Small Business Administration (SBA) (see below), which are some of the cheapest, ranged from 2.25% to 4.25% for variable loans and 5.0% to 6.0% for fixed loans, as of July 2022 depending on the size and the length of the loan.

Types of Commercial Real Estate (CRE) Loans

澳洲幸运5开奖号码历史查询: Here a🍸re the mosꦬt common types of CRE loans:

• Permanent Loans are first mortgages on a commercial property. A permanent loan must have some amortization and a term of at least five years written into the contract.
• 澳洲幸运5开奖号码历史查询:SBA Loans are written by traditional and non-traditional lenders but are guaranteed by the SBA. There are several different SBA loans that cater to different types of borrowers, the most popular being the 7(a) loan.
• 澳洲幸运5开奖号码历史查询:Bridge Loans provide a short-term first mortgage loan on a commercial property typically with a six-month to a three-year term. Bridge loans are typically obtained when a borrower is 澳洲幸运5开奖号码历史查询:waiting for longer-term financing or attempting to refinance an existing obligation.