For those entering into the world of commercial real estate, understanding the many loans and commercial real estate loan terms that various entities provide can be confusing. From traditional banks to hard money lenders, institutions and private lenders offer varying terms that can range to as little as 3 months to 20 years or more.
There are several different options a company or individual has when trying to secure funds for a commercial project. Some investors lend on specific types of projects, such as only multifamily units, while others will lend on any and all types of businesses and developments from retail to hospitality to office space to industrial. Commercial real estate loan terms on the various lenders vary dramatically. A SBA loan, for instance, usually offers terms in the 10 to 20-year range. They are hard to obtain and time to funding can take several months. With a traditional commercial mortgage, you will typically find terms that range from 5 to 20 years. Time to funding is usually over one month and they require a high credit score. A bridge loan is a short-term asset-to-asset based loan that usually tops out at about 12 months, though terms can often be extended. Commercial mortgage-backed security (CMBS) loans fall in the 10-year range at which point the debt matures and refinancing is required.
If this is your first foray into commercial real estate, it’s important to note that commercial real estate loan terms are dramatically different from residential loans. A residential mortgage typically is an amortized loan with a debt repaid in regular installments. These fall in the range of 15 to 30- year mortgages. At the end of the period, the loan is paid off.
Commercial loans, on the other hand, can offer terms that are anywhere from 3 months to 20 years. The amortization period is usually longer than the term of the loan resulting in a balloon payment at the end of the term. For example, a borrower may obtain a commercial loan for a term of five years with an amortization period of 20 years. They would then make payments for five years in a monthly amount that would actually pay it off in 20 years. At the end of the five-year term a balloon payment would be due which would pay off the loan in full. The terms and amortization period will usually affect the rate that the borrower receives.
Typical Terms for Hard Money Lenders
Because hard money lenders usually fall in the private sector, these lenders can offer more flexibility. Commercial real estate loan terms usually fall somewhere between 1 to 3-years and are considered short-term loans. Because they can fund in as little as a week, they are often used when capital is needed in a short time, such as when a prime piece of property comes on the market and investors are trying to beat out their competitors by getting a bid in quickly and with no contingencies.
Terms for commercial hard money loans usually range anywhere from one to three years.
At Level 4 Funding, we offer a wide variety of loan programs from bridge loans with terms that start at 3 months to construction loans with monthly draws and terms of two years. Other loan options provide terms as high as five years. Approval occurs in as little as 24 hours with funding provided in less than a week. Call us today for a no-obligation quote.
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.