Commercial Real Estate Lending - Overview, Importance, Types
Are you interested in commercial
real estate loans for your organization and wonder how they work?
It is high time to develop an understanding of CRE loans. Read
this blog to get essential information about CRE loans.
WHAT IS A
COMMERCIAL REAL ESTATE LOAN?
·
A commercial real estate or CRE loan is based on a debt-based
agreement set between a borrower and a financial institution under which the borrower uses the funds to buy commercials property.
·
There is a common misconception that the terms commercial loan
and commercial real estate are interchangeable. However, this is not a valid concept
as both have their own significance. In commercial loans, the secured funds can
be used for non-real estate purposes like buying some machinery or managing
some expenses.
·
However, a commercial real estate loan is a mortgage secured by
a lien on commercial property in contrast to residential property. It is a loan
that refers to any income-producing real estate used for business purposes such
as for offices, retails, and hotels.
What is the importance of CRE loans?
- They are generally
essential financing for all the businesses to be able to operate and
expand.
- CRE loans are much
larger than residential real estate loans to provide banks with a bulk of
income.
Types of CRE loans
- Permanent loans: They are first mortgages on a commercial property. A the permanent loan must have repayment with at least a term with five years of
a written contract.
- SBA Loans: SBA loans are
written by the traditional and non-traditional lender but ensured by the
SBA. There are different types of SBA loans, but the 7(a) is the most common one.
- Bridge loan: These are a
short-term mortgage loan on a commercial property for a term of around six
months to three years. Bridge loans for real estate can
generally be obtained while a borrower is waiting for longer-term
financing.
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