Explaining different types of commercial loans

[George Tesfa]

Certainly! There are various types of commercial loans available to finance different types of commercial real estate projects. Here's an overview of some common types:

Traditional Commercial Mortgages: These are conventional loans offered by banks, credit unions, and other financial institutions to finance the purchase or refinance of commercial properties. They typically have fixed or adjustable interest rates, terms ranging from 5 to 20 years, and amortization periods of up to 25 or 30 years.

SBA 7(a) Loans: The U.S. Small Business Administration (SBA) offers 7(a) loans to small businesses for a variety of purposes, including purchasing owner-occupied commercial real estate, refinancing existing debt, or financing equipment. SBA loans feature favorable terms, such as low down payments and longer repayment periods, and are partially guaranteed by the SBA, reducing the lender's risk.

SBA 504 Loans: Another SBA program, the 504 loan program, provides financing for the purchase, construction, or renovation of owner-occupied commercial real estate or heavy equipment. These loans are structured with a combination of a first mortgage from a conventional lender (typically covering 50% of the project costs), a second mortgage from a Certified Development Company (CDC) backed by the SBA (covering 40% of the costs), and a down payment from the borrower (typically 10%).

Bridge Loans: Bridge loans are short-term financing solutions used to "bridge" the gap between the purchase of a new property and the sale of an existing property or the availability of permanent financing. They are typically used for transitional or value-add properties and have higher interest rates and shorter terms compared to traditional mortgages.

Construction Loans: Construction loans provide financing for the ground-up construction or substantial renovation of commercial properties, such as office buildings, retail centers, or multifamily developments. They are typically structured with a short-term interest-only period during construction, followed by conversion to a permanent mortgage upon completion of the project.

CMBS Loans (Commercial Mortgage-Backed Securities): CMBS loans are commercial real estate loans pooled together and securitized into bonds, which are then sold to investors. They are often used to finance large, income-producing properties and offer competitive interest rates and longer loan terms. CMBS loans are underwritten based on the income-generating potential of the property rather than the borrower's creditworthiness.

Mezzanine Loans: Mezzanine loans provide financing that sits between senior debt (typically a mortgage) and equity in the capital stack. They are often used to supplement traditional financing and provide additional leverage for commercial real estate projects. Mezzanine loans have higher interest rates and may include an equity participation component, allowing lenders to share in the project's upside potential.

These are just a few examples of the various types of commercial loans available to borrowers. Each type of loan has its own features, benefits, and eligibility requirements, so it's essential to carefully evaluate your financing needs and options before choosing the most suitable loan for your commercial real estate project.

https://www.amerimort.com/

[Henry Clark]

What deals have you done and what type of funding sources and why?

[Seo Hui Han]

Okay, I'll jump in here.

I've done SBA 7(a) loans, one for 1.7mil and another for 2 mil, for two separate commercial properties (gas station c-stores, ground up raze and rebuilds).  Got them through a local community bank in Los Angeles, where I and my businesses are located.

30 year terms, 30 year amortization.  In retrospect...this was probably a "meh" financing choice in my opinion, not sure if I would do it again.  30 year terms, no fear of balloon, that's great.  But they came with prepayment penalties of 5% within 1st year, 3% within 2nd year, 1% within 3rd.  No yield maintenance, thankfully.

They are adjustable rates, but because my LTV was pretty low (30%), the rate hikes have just been a nuisance more than anything else. For example, on my 1.7 mil loan, my payments went from 9k a month to 15k a month, principal and interest payments. Though of course, at the beginning it is mostly interest. This is out of 80K a month gross profit.

The paperwork was...pretty hefty, but I've been doing this long enough where I'm pretty desensitized to it, all the personal financial statements and schedules.  But I can see for a first-timer it might seem daunting, but really it's not.


There are guaranty fees at the beginning...I think I shelled out like 40K or something like that?  That was freaking annoying.

As for why?  At the time, I thought I would want to keep these properties forever.  But I have changed my mind and I've decided to sell, and I think I might have been better served with a different loan product, had I known that I would want to offload these properties back then.

[Robert Ellis]

Quote from @Seo Hui Han:

Okay, I'll jump in here.

I've done SBA 7(a) loans, one for 1.7mil and another for 2 mil, for two separate commercial properties (gas station c-stores, ground up raze and rebuilds).  Got them through a local community bank in Los Angeles, where I and my businesses are located.

30 year terms, 30 year amortization.  In retrospect...this was probably a "meh" financing choice in my opinion, not sure if I would do it again.  30 year terms, no fear of balloon, that's great.  But they came with prepayment penalties of 5% within 1st year, 3% within 2nd year, 1% within 3rd.  No yield maintenance, thankfully.

They are adjustable rates, but because my LTV was pretty low (30%), the rate hikes have just been a nuisance more than anything else. For example, on my 1.7 mil loan, my payments went from 9k a month to 15k a month, principal and interest payments. Though of course, at the beginning it is mostly interest. This is out of 80K a month gross profit.

The paperwork was...pretty hefty, but I've been doing this long enough where I'm pretty desensitized to it, all the personal financial statements and schedules.  But I can see for a first-timer it might seem daunting, but really it's not.


There are guaranty fees at the beginning...I think I shelled out like 40K or something like that?  That was freaking annoying.

As for why?  At the time, I thought I would want to keep these properties forever.  But I have changed my mind and I've decided to sell, and I think I might have been better served with a different loan product, had I known that I would want to offload these properties back then.

  I appreciate this we were just looking at 7a as an option for another business that isn't real estate for yacht charters in miami and I think we are going to get a collateralized loan more like real estate and not a 7a. ours is much smaller probably 250k but the paperwork and rate hikes etc I think make it worse so I really appreciate your response here. I think the rate on an asset will be lower anyways.