To get a commercial real estate loan, you need to apply to either a commercial bank or a commercial mortgage company.
The word commercial is just a fancy word for “business”. For example, whenever you see the term, “commercial bank”, it simply means “business bank” or a bank that is in the business of accepting deposits and making business loans; i.e., an everyday, garden-variety bank, as opposed to an investment bank, which primarily sells investments, like stocks and bonds.
Most home loan lenders do NOT make commercial loans. In other words, you can’t just apply for a commercial loan to the guy who refinanced your home.
Commercial lending is pretty sophisticated, and few loan agents can competently be experts in both residential lending and commercial mortgage lending.
There are five major types of commercial mortgage companies – life insurance companies, conduits, commercial banks, credit unions, and hard money commercial lenders.
Life insurance companies (called “life companies”) have, by far, the lowest interest rates on commercial loans; but few mortals can qualify.
To qualify for a commercial loan from a life company, the commercial loan must usually be for at least $5 million, the property has to be young, if not brand new, it has to be fully-leased, and your loan-to-value ratio cannot usually exceed around 53%.
Conduits have the cheapest, fixed rate commercial loans of all of the commercial lenders who actually close loans for mortals like you and me.
Conduits are mortgage banking companies that originate large, fixed rate commercial loans according to very strict guidelines. These loans are eventually placed into pools and securitized.
The good news is that conduits offer very low interest rates on commercial loans, and they will sometimes stretch to 65% (68%?) loan-to-value.
The bad news is that most conduits prefer loans over $5 million, and all conduit loans have prepayment penalties large enough to choke a horse.
Commercial banks make most of the commercial mortgage loans for regular guys like you and me. The best place to start is your own bank.
The only commercial lender who can make you a better commercial loan than your own bank is … well, your mother.
If your own commercial bank won’t make approve your commercial loan, try some of the commercial banks located close to your commercial property.
And don’t forget about credit unions. Prior to 2011, credit unions almost never made commercial loans. Since 20111, many credit unions have become quite active in the commercial loan business.
In less than three years, they have seized over 3% of the commercial mortgage loan market. Look for credit unions located close to the subject property. Like all commercial lenders, credit unions greatly prefer to make commercial loans close to one of their offices.
No discussion of commercial loans would be complete without mentioning SBA loans and USDA Business and Industry loans.
To qualify for an SBA, your company must occupy, or intend to occupy, at least 51% of the subject property. To qualify for a USDA B&I loan, the subject commercial property must be located in either a small town or a rural, lowly-populated area. Both SBA loans and USDA B&I loans are partially-guaranteed by the Federal government. They are therefore easier to get.