If your business wants to acquire commercial property—such as a retail shop, office building, or manufacturing facility—you’ll likely want to opt for a commercial real estate loan. Similar to equipment financing, the underlying property acts as collateral for this type of business loan.
Commercial real estate loans can take on different structures depending on the lender you work with and the amount of financing you need. Banks provide commercial real estate loans with longer repayment terms and lower interest rates.
Hard money lenders, on the other hand, are private lenders who work with a wider pool of borrowers to offer commercial real estate loans. These lenders are more likely to offer hard money business loans or balloon loans for commercial real estate purchases. With a balloon loan, you make smaller payments for several years based on a longer amortization period, followed by a large balloon payment at the end of the loan. If you can’t afford the balloon payment, you might have to renegotiate terms with the lender or refinance the debt.
Ultimately, the size of your commercial real estate loan will depend on a factor called loan-to-value (LTV). LTV is a comparison of the size of the loan versus the value of your commercial property. A typical LTV for commercial real estate loans is 75% or 80%. For example, if your building is valued at $100,000, you might get a maximum amount of $80,000 and have to provide the rest as a business loan down payment from your own funds.