In order for a property owner to construct a new building, they will typically need a mortgage. This need for borrowing sometimes extends to post-construction upkeep since owners must maintain their building and ensure the property is always being leased. Commercial real estate loans are commonly given by banks or private lenders for these reasons.
The relationship between a property owner and a lender is typically fruitful for both parties since properties tend to bring in large amounts of revenue. These are the fundamental principles that drive loaning practices, but what loan types are available and what is each type useful for?
Bridge loans are temporary loans for people who aim to purchase a new home before selling their existing one. They usually have a term of one year. Essentially, obtaining a bridge loan means you are borrowing the down payment for a new home.
They are particularly helpful for those who need funds immediately. To obtain a bridge loan, you usually need a high credit score and proof of income. Private lenders want to see that you can pay the property’s expenses as well as the loan.
Bridge loans of $100,000 and over with rates beginning at 8.5% can be secured through Gelt Financial Corporation. They also offer discount-note payoffs DIP, exit financing for bankruptcy, and loan repositioning.
· You can list and purchase a new home at the same time.
· Monthly payment flexibility.
· Can be difficult to pay two mortgages at the same time.
If all involved groups are equally responsible for a property’s profits and losses, a joint venture loan may be appropriate. These are also helpful for individuals who are struggling to receive a loan when applying independently.
· More resources.
· Only temporary.
· Shared risk.
· Usually more successful.
· Sometimes resources can be imbalanced.
· Requires lots of planning and research.
· Partners may be unreliable.
These typically last 1 to 2 years and allow the person obtaining the loan to build a commercial property. The lender controls all of the money from the loan just so they can ensure the funds are only being used for constructing the new development. These types of loans are based on what the expected value of the home will be post-construction.
Aside from traditional construction loans, in which the buyer is expected to pay the loan back in full after the building is complete, there is also construction to permanent loans. With construction to permanent loans, you will receive the money needed to construct the building and more time to pay off the loan. Once the building is complete, the loan switches to a loan that is similar to a mortgage.
· Doesn’t collect a lot of interest.
· Ensures you and your construction team follow a strict schedule since you must propose a plan when applying for the loan.
· The money may arrive in stages.
· Your credit score must be very high.
The Small Business Administration created these types of loans to encourage lenders to loan to small businesses, thus fostering economic growth. The SBA pays back these loans even if the business fails so lenders are more likely to pursue risky business ventures.
· Good for entrepreneurs with minimal experience since SBA loans are so accessible.
· SBA will sometimes provide longer loan maturities and lower monthly payments.
· Can be constructed without balloon payments.
· Higher interest rates.
· More paperwork and time-demanding.
· Must have high credit score.
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