As anyone in the business can tell you, there is a tremendous potential for generating income in commercial real estate. However, the trick to becoming successful in this field is not so much a matter of finding good investment properties, as it is in securing commercial real estate financing to fund the various projects. Here are some of the basics about commercial real estate lending.

Commercial Real Estate Loan Types

Although there are commercial real estate loans available to cover practically any situation in the industry, there are a few types of loans which are far more common than all the rest. For instance, a traditional commercial mortgage would be offered by a bank and would be for a period between five and 20 years, but you must have good credit in order to obtain one.

A commercial bridge loan helps an investor obtain immediate financing while some other asset is waiting to be sold. A hard money loan generally covers a short term and will invariably have a high interest rate, but will allow you to obtain the money quickly, and without perfect credit. The SBA 7(a) loan can be for an amount up to $5 million and is backed by the Small Business Administration. The 504 loan is also backed by the SBA, and can be for amounts greater than $5 million.

Requirements for Commercial Real Estate Financing

The most important thing about your credit history is that it should contain no bankruptcies, foreclosures, or tax liens, although it would be beneficial to have a credit score above 680. You should also already have a business entity set up before you apply for a loan, because that increases your chances for approval. Your paperwork should be completely organized before you send it into a potential lender, because that is a strong reflection on your organizational abilities as a borrower.

It’s also important that you have a low loan-to-value (LTV) ratio, and this is calculated by dividing the loan amount by the purchase price of the property. As an example, if you intend to borrow $90,000 and the property is actually worth $100,000, your LTV is 90%. By having these requirements satisfied before you apply for any commercial real estate loan, you’ll be much better positioned to be approved by a lender.

Need Commercial Real Estate Financing? 

If you need funding for your next big commercial real estate transaction, we may be able to help. Contact us at Painted Horse Financial so we can discuss some options which may be available to you.