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Commercial Real Estate Investment Loans

Whatever the reason is that you want to obtain commercial real estate, there is one thing that is consistent: you will need financial help in some form. You’re all going to need a loan for your dream commercial property, but you should know about all of the options available to you before you rush to sign any contract.

Commercial real estate loans are separated into three groups: acquisition, development, and permanent, but sometimes development is separated into construction and development. Conventional loans include bank loans, bridge loans, acquisition and development loans, and mezzanine loans. For those with poor credit, available financing options include SBA loans, hard money loans, and asset-based financing.

Whether you are a retailer owner hoping to start your own company, a flipper in the business of renovating and reselling commercial properties, or have an important professional service you have and can offer to your community if you only had the property to start, keep reading to learn more about the options available to you, including what they require in order to approve you.

Types of Commercial Investment Loans

Alternative Small Business Funding

There are three different types of commercial investments based on the stage your plan for the commercial property is at: the acquisition phase, the development and/or construction phase, and the permanent phase.

Acquisition Loans

These loans are given for the purpose of obtaining the commercial property you want to use or improve. The types of conventional acquisition loans include the typical bank loan, stock swapping, debt financing, equity financing, and acquisition and development loans. To be approved for an acquisition loan, you just need to have an approved credit score.

Development Loans

In addition to acquisition and development loans, you can use property to fund commercial developments, improvements, or the construction of the commercial property. The term limits with these loans will usually range between 5-7 years but have an amortization period of up to 40 years.

Permanent Loans

Permanent loans are acquired after a commercial property has been obtained and the necessary improvements and/or developments made. They’re given so that you can pay off your short-term construction loans in exchange for their long terms of 15-30 years. 

Although normally given after commercial real estate is yours and developed, these permanent loans can be used to acquire the property. You will need a loan-to-value ratio of 85% and provide the deed of trust and clear title to be approved.

Conventional Loans

Commercial Bank Loans

Conventional bank loans often work the same with commercial properties as they do with personal properties, i.e. a family home but with slightly modified terms in the contract, and shorter loan payment terms. Instead of 10-30 years, you would have a contract that only lasts 5-10 years.

While a home’s down payment is usually 20% of the house’s price, investment properties carry more risk and because of that, they have larger down payment costs. The down payment cost of an investment property is typically 30% of the property’s purchase price.

Just like with personal property, the mortgage rate for commercial investments is fixed. The loan will also remain in accordance with the guidelines set by Fannie Mae or Freddie Mac but are not backed by the federal government like loans for veteran or agriculture properties.

Acquisition Financing

Nearly any business type, so long as they are legitimate, can receive an acquisition loan in exchange for at least 10% of the total price of the real estate property. Unlike conventional bank loans, acquisition loans will have close to the standard loan term limit of between 10-30 years.

Debt financing is the cheapest financing option to acquire commercial real estate and is the most familiar. Money is lent to the commercial developer or property owner but the property is used as the collateral for the loan.

Stock swaps are another form of acquisition financing but is much rarer. You can swap your stock in an existing company that you want to acquire for shares in the company. This is done between publicly traded companies because in private transactions, the stock is not sold quickly.

Finally, there is equity financing that carries the greatest risk to lenders because they aren’t able to claim any assets. This also makes it an expensive form of capital and forces you to give up partial ownership.

Acquisition and Development Loan

This loan is a common choice for commercial land developers. Acquisition and development loans provide enough money to pay for obtaining property and begin the process of making improvements and/or subdivisions to it. It pays for some of the hard and soft costs.

Hard costs, also known as “horizontal improvements,” refer to the construction costs such as the cost of the heavy machinery, cement, etc., while soft costs include anything not directly linked with the physical development such as design fees.

Standard A&D loans won’t usually provide full financing for your project if a small portion of the money is used to purchase undeveloped land and the rest is required for grading, digging, installing water and power lines, and installation of sewer lines, road construction, and more. The lender will only provide enough to get the process started.

This loan is impacted by a number of factors including,

  • The economy of the local surrounding area
  • The geographic location of the property and its quick sale value
  • The zoning of the property
  • The migration patterns of the Country’s populace
  • The method of payment used for the down payment (cash, credit for work done, a second mortgage, other collateral, etc.)
  • The exit plan of the developer

The minimum down payment a developer must pay is 30%. If you pay this amount in cash, certain hard-money lenders will often finance up to 70% of the property’s purchase price. If anything else is used, especially collateral, the financing loan-to-value range drops considerably, maybe even to 55%.

Small Business Loans

When it comes to commercial real estate, Small Business Administration loans that are useful are SBA 7(a) and SBA 504, though they are not always friendly to those with poor credit. Both help borrowers to purchase or refinance commercial property, but beyond this they have significant differences.

SBA 7(a) makes it possible to purchase or refinance real estate up to $5 million, but in order to qualify you must provide at least 10% of the cost of the property for the down payment, a credit score of at least the standard 680, and you have to have been in business for at least 3 years. As for their term length, they usually have an amortized period ranging between 10-15 years and an interest rate between 5%-8.75%.

As for SBA 504 loans, the terms and requirements are quite different. SBA 504 loans don’t have a loan limit but have a term limit between 10-20 years with an interest rate that ranges between 3.5%-5%.

SBA loans are usually offered by banks. One of the main benefits of SBA centers is the additional resources such as free counseling by retired executives.

Alternative Funding Options

The previous loans listed are not friendly toward those who have poor credit, and if it’s the case that you have a credit score less than 680, you will need to look for alternative funding sources, such as the following.

Asset-Based Lending

Asset-based loans lending for commercial real estate is a loan that is secured to the investor through an asset so that if you fail to pay your loan within the typical 1-5 year amortize period with the usual principal and interest payments. The assets liable to be used are accounts receivable, equipment, and/or your inventory.

Business Cash Advances

Business cash advances, or merchant cash advances, are perfect for small businesses who need more working capital but going to the banks isn’t an option. While applying for an SBA or other bank loan can take two months or more to process before either accepting or denying you, merchant cash advances could take as little as a week.

These business cash advances typically only require a FICO credit score of 500 and proof of a consistent monthly revenue of $10,000 or more. The term length can last anywhere between 6 months to 2 years, but they are ultimately short-term solutions.

What’s unique about cash advances is that your repayments are made by selling a calculated percentage of your future receivables which allows them to be flexible for you.

Hard Money Loans

Hard money loans are one of the first options clients who have too low a credit score or have been previously denied by another lender, have heard of. As alternative capital that can be provided to you through lending companies or private individuals, they don’t use your credit as collateral. Instead, they usually require commercial real estate and are a short-term financing option.

Hard money loans have a loan term between 2-5 years but may have an amortization period of up to 25 years. You will either pay interest or interest and principal and a balloon payment at the end of the term. Their terms include higher interest rates usually ranging between 10%-20%.

Before considering this option, it’s important that you do your due diligence against the lender before you sign a “loan-to-own,” contract with unreasonably high-interest rates and lose your property. This is partially because they are not subject to the regulations traditional loans and lending sources are, so they are free to be used for a number of financial reasons.

Commercial Bridge Loans

Bridge loans are a specific type of hard money loan used to finance an investment property in its acquisition or development when it’s an immediate opportunity. A bridge loan is a type of short-term financial capital that is given when you need more time to meet a pre-existing debt,  to buy the property, to complete or improve it to increase its value,  refinance it, sell it, or lease it.

Bridge loans have the shortest loan term in our article, only providing 6-12 months of financial aid, maybe less. For this reason, these loans are also known as “gap loans,” because they close the gap between your current need for financial assistance and the time it takes for you to obtain a more long-term loan.

This is a specific type of loan and comes with very specific terms. They often require some kind of collateral, and it isn’t unusual for the property you’ve chosen to be the collateral. If your credit score is less than the standard minimum of 650-680, bridge loan lenders will still consider the value of your collateral before deciding if you should be approved or not.

Because business gap loans provide instantaneous funding for a short term on a risky property, they have high-interest rates between 15%-24%. The last thing to be aware of is that a gap loan can provide you the monetary means for renovation but it does not apply to constructing the property. Urgent opportunities only.

If you are wondering where to apply for this loan, lenders of all kinds will offer it whether they are banks or private lenders, which does make it different from general hard money loans, which are not offered by the banks.


As you can see, there are plenty of options available to you no matter the reason you need the commercial property, the stage of the property you need your lender to finance, or the credit score and financial reputation from previous projects.

At South Florida Funding, we can tell you much more about each of these options and we also offer many of these alternative financing options in our funding programs. If you would like to have your questions answered by financial experts or would like to hear our terms, give us a call at (786) 544-2700 or send us an email. We look forward to helping you in any way we can!


The business funding you need when others say No!.

2569 Bay Pointe Dr.
Weston FL 33327




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