Commercial real estate can be a lucrative, long-term investment — but it can also be significantly costly, and obtaining financing can be tricky. It will be even more difficult if you have little savings, subpar credit, or a limited business history.
But there are multiple options for financing, and which one works for you will depend on your own background, as well as the type of property in which you’re looking to invest.
1. Bank or Credit Union Loan
The simplest type of lending option for commercial real estate will be to borrow from a bank or credit union. If you are approved for a typical loan like this, interest rates will typically be on the reasonable side (depending on the property’s appraised value), and fees can be moderate.
However, this may be the trickiest type of commercial loan to obtain. You need extremely good credit, and likely some business background that demonstrates your reliability for the loan. It’s also likely that the property in which you invest will require proven income-generating potential — ruling out “fixer-uppers” or less conventional purchases.
These loans will also typically take the longest amount of time to be approved — potentially a half year or more.
2. Bridge Loan
A bridge loan is exactly what it sounds like: a financial bridge to a more long-term loan in the future. If you have a reliable income, and good credit, a bridge loan can get you a capital injection quickly, helping you with a down payment or other expenses as you work to secure long-term financing.
A bridge loan, however, will have a short term, and interest rates may be high, so it needs to be taken out in coordination with a longer-term investment plan.
3. Hard Money Loan
Hard money loans are both a blessing and a curse: you can often get access to needed sums of money quickly, even with a less than ideal financial history. The cost, however, can be in extremely steep interest rates, making this loan potentially very expensive over time. However, for investors who have exhausted other options, a hard money loan can be part of the path to finding a commercial real estate purchase.
In short, any commercial property investment requires a sterling business plan and a reliable method of recouping your investment. But there are multiple funding options, even for investors with limited professional histories. Investigate your options, and look for a financing method that makes fiscal sense for you.