Financing Your Commercial Investment
Commercial real estate financing differs from residential financing. Investors must understand loan options and financial requirements.
Common Financing Options
- Traditional Bank Loans: Best for low-risk investors with strong credit.
- SBA 504 & 7(a) Loans: Designed for owner-occupied commercial properties.
- Bridge Loans: Short-term financing while securing long-term funding.
- Hard Money Loans: High-interest, short-term funding for quick acquisitions.
- CMBS Loans: Securitized loans ideal for large-scale commercial properties.
Key Financial Metrics to Consider
- Loan-to-Value (LTV): Typically 65%-80% of the property’s value.
- Debt Service Coverage Ratio (DSCR): Measures a property’s ability to cover loan payments (1.25+ is ideal).
- Capitalization Rate (Cap Rate): Evaluates the return on investment (higher cap rates indicate better returns).
Working with a knowledgeable broker and lender will help secure the best financing terms.