Commercial real estate financing can be one of the most critical components of any commercial real estate deal. Commercial real estate financing lenders are as diverse as the industry itself leaving it up to you to stay knowledgeable about the process and the type of financing available. This of course involves weighing the pros and cons of commercial real estate lending before investing your time and money into the process. Today we will educate you about types of financing and what it can and cannot do for you.
Banks are the most common lender that investors turn to. Banks typically offer shorter-term financing with one of two options: balloon payments or a rate reset. While the term is short, amortization periods tend to be longer 15 – 20 years keeping the monthly P+I reasonable. IF your deal isn’t “perfect” it can be difficult to get through the bank underwriting process so when considering banks as a financing option you must also weigh pros and cons as we have for the other options.
Pros:
Banks offer fixed and floating options
- Competitive rates
Cons
Recourse
- Shorter fixed periods
- Inflexible underwriting standards
Private money lenders. As their name suggests, private money lenders are investors lending their capital to a real estate transaction. Perhaps even more importantly, however, these lenders practice asset-based lending models; they focus more on the property in question than the borrower and their credit.
Pros.
- Generous lending standards
- Accelerated timeline to closing
Cons
- Expensive cost of money
U.S Federal Agency Programs: The federal government has established a number of programs that guarantee loans making it easier for lenders to extend financing. Agencies sponsoring these loans include SBA and HUD. For multifamily properties, the same government agencies that offer residential loans also provide commercial options that are worth looking into.
Pros
- Highly Competitive Rates
- Limited Personal Guarantees/ Laon Guarantees
- Longer Repayment Terms
Cons:
- Burdensome Application Process
- Inflexible lending guidelines
Life insurance companies: To many investor’s surprise, it’s entirely possible to finance some of the largest and most sought-after properties with capital secured from a life insurance company. However, this option has both pros and cons as well.
Pros:
- Lower cost of capital
- Non-recourseloans
Cons:
LTV’s aren’t as generous as other options
- Short amortization periods
At Biz Lending Partners we continue to strive to educate the individual investor so that they can better control their financial future. Our experienced advisors have a track record of getting even the most difficult loan funded at the best possible rate and terms. To learn more about Commercial Real Estate Financing options or to get in touch with one of our competent team members, follow the link to our homepage provided below the article. https://bizlendingpartners.com
