5 Private Capital Lending Options For Your CRE Investment
With a constantly evolving real estate landscape, savvy investors need loan options that are as dynamic as the market. Thankfully, many types of private capital loan options are available to choose from. But are they all created equal? This post focuses on 5 popular commercial real estate loans that can help investors build equity, and realize lucrative returns.
Private Real Estate Loans: What You Need to Know
Before we dive into loan logistics, let’s unpack what types of properties commercial real estate loans are designed for. Commercial loans support investors when purchasing, building or rehabbing properties. This can include multi family homes like condos, townhomes, multiplexes or entire subdivisions. It can also include commercial spaces like offices, medical complexes, shopping centers, or urban infill. Still other loans are targeted towards land development.
Let’s cover valuable insights to be aware of related to financing commercial real estate.
Investors frequently want to know how private loans are structured, and if they are really that different from traditional bank loans. The concept of a loan is the same whether it’s from a bank or a private capital company: a borrower receives a set amount of money that they pay back with interest over a predetermined amount of time. However, the details of the two models can vary greatly.
Banks are often slow to work with due to very strict requirements they have for approval. For example, banks rely heavily on a borrower’s credit history, and debt-to-loan ratio, which can exclude many potential borrowers. The process of underwriting through a bank loan can also be arduous. An upside of bank loans however is that typically, their interest rate is lower than private capital firms.
There are notable advantages to private commercial real estate loans, flexibility being chief among them. Because private capital firms loan their own money, they can make loan approval decisions and draw on funds in a matter of days. For savvy investors who are looking to take advantage of fortuitous commercial opportunities, rapid turnaround time can make or break a deal.
Some final components to know about commercial loan structures are typical term lengths, and capital requirements. The term structure of a commercial loan is a couple of years at maximum. This is very different from a traditional 30 year consumer loan many people are familiar with. Additionally, nearly all reputable lenders will place some emphasis on the borrowers debt service coverage ratio, known as DSCR. A borrower’s DSCR measures a business’s cash flow and compares that to the size of its debt. This helps inform lenders of the risk they take in lending.
Interest Rate Overview
Private commercial lending interest rates often start around 8% but rates vary. We invite you to connect with a Broadmark Market Expert to learn more about our interest rates and competitive loan programs.
5 Commercial Investment Loan Programs
1. Private Capital Loans
Just like they sound, these commercial investment loans provide cash from private capital lenders. They typically have a quick approval process, and have terms of 1-5 years. It’s paramount that investors partner with a credible, experienced lender to ensure a seamless loan process. Broadmark is proud to offer an array of loans in the $5M-$75M range to support your next project.
2. Bridge Loans
Sometimes investors need very short-term funding to jumpstart, continue or complete a commercial real estate investment. Bridge loans provide the cash to make that happen, with all the perks of private equity lending like quick cash draw, and loans for an array of property types. Often, these loan terms last 12 months to a couple of years, and then the borrower executes an exit strategy of either refinancing the loan with a long-term lender, or repaying the loan in full. Broadmark specializes in bridge loans for Urban Infill, Multifamily Construction and more.
3. Blanket Loans
The headache of securing multiple bank loans for multiple different commercial investment properties is enough to turn away even the most dedicated investor. That’s where blanket loans come in. These loans allow borrowers to secure multiple properties under one loan. This simplifies things down to one payment and term plan for multiple properties. Keep in mind that typically each of the properties under the blanket loan will serve as collateral for each other. Connect with a Broadmark Market Expert to see if this unique loan opportunity meets your needs.
4. SBA Loans
Business owners have collaborated to help support the collective growth of other businesses across the country through the creation of the Small Business Administration (SBA). The SBA oversees 2 main types of loans for commercial properties: 504 loans and 7(a) loans.
- 504 loans are a joint effort between the SBA and local non-profit loan entities called Certified Development Companies (CDC). The two parties fund around 90% of a loan amount and the CDC is the party responsible for structuring the terms of the loan. It’s important to note that 504 loans are designed as fixed-rate loans for existing land sites or buildings.
- 7(a) loans mirror a traditional loan structure in that they have a heavy emphasis on the borrower’s credit history, income and local market.
5. Permanent Loans
For long term projects that would benefit from a more traditional amortization schedule, permanent loans are a great fit. Many commercial lenders offer long-term loans like this that boast more moderate interest rates.
Whatever your preference, there are a plethora of commercial property funding methods to meet your specific needs, and allow you to invest successfully.
Choosing a Lending Partner
Oftentimes choosing the right commercial lender is just as crucial as picking the right type of loan for your project. Here are some tried and true criteria to consider as you shop the market for the best loan partner:
- Loan term flexibility
- The company’s breadth of experience
- The types of loans available
- Origination fees
- Documentation requirements
- Starting interest rates
- Better Business Bureau ratings and customer testimonials
Private Commercial Real Estate Takeaways
If you’re looking to expand your commercial real estate portfolio, and want to bypass working with a traditional bank lender, there are private CRE loans available for every type of property development project. Private capital loans can offer convenience, flexibility and speed; necessary components to successful commercial real estate investing.
Want to know more? Contact the Broadmark Realty Capital team to learn your financing options.
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