Loan Options
Conventional Loans
A Conventional Loan is the most common type of mortgage loan. Large or small this loan is not backed by a government agency. This loan is originated, backed, and serviced by private mortgage lenders such as banks, credit unions, and other financial institutions. Although some lenders may require a credit score of 660 or higher, it’s possible for a score as low as 620 to be approved. A downpayment of 20-25% or more is typical for Conventional mortgages.
Small Business Administration
SBA is a government loan which offers financial help for small businesses. Within SBA the 7(a) Loan Program is the best option when real estate is part of a business purchase. There are special requirements to qualify for an SBA. These include among other things, operating for profit, having reasonable invested equity, doing business in the United States or its possessions, and having no existing debt obligations to the US government. The loan may also be used for short and long-term working capital, refinancing current business debt, and purchasing furniture, fixtures, and supplies for the business.
Also within SBA is the CDC/504 Loan Program. Available through Certified Development Companies, the 504 Loan Program provides long-term, fixed rate financing for major fixed assets that promote business growth and job creation. The maximum loan amount for a 504 loan is $5 million per project. Certain cnergy projects can qualify for up to $5.5 million per project with a limit of three projects not exceeding $16.5 million combined.
Life Company
Life Company refers to an insurance sourced real estate loan. It is secured by a first lien position on the property being financed. These loans tend to be well suited for transactions involving strong borrowers with good credit, well-maintained properties, low leverage, and where the collateral is situated in or around a major MSA. For larger balance commercial property loans including office buildings, retail centers, single tenant retail, and other commercial properties, Life Companies are often the most competitive financing option. NOTE: Life company financing is less competitive when it comes to leverage, however, especially when it comes to cash-out refinancing.
Commercial Mortgage Backed Security
This is a loan that features flexible underwriting guidelines. It is secured by a first-position mortgage on a commercial property. Conduit lenders, commercial banks, investment banks, and syndicates of banks package and sell these loans. A CMBS Loan has a fixed interest rate, tends to be amortized over 25 - 30 years, and has a large payment at the end of the term. This loan may or may not include an interest-only period. If a commercial real estate investor can’t meet stringent conventional liquidity and net worth guidelines, a CMBS Loan enables that company to invest in real estate.
Private Funds & Bridge Loans
This is a loan for short-term borrowing. In essence it bridges the time between larger-term financing options. A bridge loan can be in effect as little as 2 weeks or as long as 3 years. This is also referred to as a “Hard Money Loan”. The borrowed amount is sourced from private lenders, and it is best used as an emergency resource while looking for long-term financing. A bridge loan enables the borrower to pay off existing debt while providing immediate cash flow.