Commercial Real Estate Lending - Overview, Importance, Types

by VP Capital Lending Real Estate Investment

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.