Commercial real estate can be a sound investment, but it may require a large amount of cash up front in order to end up owning the property you’re after. This means you may need financial assistance to get you there. But which type of loan is right for you? There are multiple types to consider before you invest. 

Loan to Purchase

With a loan to purchase, typically a traditional mortgage is lended. The funds can be used to purchase real estate for a business to operate. A purchase loan also allows for the commercial real estate property to be used as an investment or for speculative purposes. This is a traditional and stable loan, but it may require you to invest quite a bit of your own equity up front as well. 

Refinancing

Like a traditional mortgage loan, a refinancing loan is relatively straightforward as well. A refinancing loan can be used to buy a commercial loan that’s under a mortgage with a term loan that has a lower interest rate than the original loan, has a longer lending term or has longer amortization than the original loan. Refinancing can also be used to tap into the value of the property for cash equity or investment.

Bridge Loan

A bridge loan is much more temporary and short-term than a traditional mortgage or refinancing loan. The very idea is denoted in the name. This loan will create a bridge from the original loan to a future point where a more stable and secure loan can be secured. These are used to quickly acquire commercial real estate. Most have a term of less than two years and have higher interest rates than traditional mortgages. This is why it’s important to quickly find a way to move your property out from under a bridge loan. 

Cash-Out Loan

A cash-out loan is a type of financing or refinancing that involves taking a previous mortgage and cashing out the equity in the property. It can also mean extracting the cash equity from the property’s worth if there is no mortgage on the land. The idea is to extract the cash equity from the investment property while the property doesn’t have a mortgage to refinance on it. 

Hard Money

With a hard money loan, a short term loan is secured purely on the commercial real estate collateral. These are short term bridge loans and the lender is typically an individual and not a bank. 

Construction Loan

A construction loan is taken out and used by a business to use for their own operations. These loans are used to build and construct for speculative reasons. 

No matter what loan you choose, make sure it’s right for you and your business. Make sure you have a solid plan so your investment pays off.