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You have been running a successful business for a couple years, but you need to either update your current commercial real estate property or buy a new one.

This is where a commercial mortgage comes in.

These types of mortgages are like traditional mortgages except you are securing land for commercial purposes rather than residential ones. Think offices, warehouses, apartment complexes or storefronts.

But what is the most common commercial mortgage? What are the typical loan terms? And who is eligible? Here are the answers to these commercial mortgage questions—and more.

To our audience of mortgage professionals, this article can serve as a valuable tool for any of your clients who are asking about commercial mortgages.

What is the most common commercial mortgage?

The most common commercial mortgage is the commercial real estate loan, which is often used to buy or refinance existing commercial properties. However, it is important to note that there are four main types of commercial real estate loans that businesses have open to them, which are as follows:

  1. Term loans
  2. Small business administration (SBA) loans
  3. Business line of a credit
  4. Bridge loans

These different types of loans are usually used when the money is needed more quickly or when there are bridge gaps in long-term financing. However, each of these commercial real estate loans differ in terms, funding time, and rates.

It is therefore critical to determine your business’s needs to decide which of these loans will work best for you. Here is a closer look at each:


1. Term loans

Term loans are the most popular form of commercial real estate loan and are what most people usually think of when they imagine a business loan. Term loans provide a lump sum of capital that you as the borrower will repay over regularly timed instalments.

These repayment periods are usually up to five years or more and feature an amortization period that can be longer than the loan term. Depending on the property you want to finance, your own financial criteria, and the amount of money you have to make a down payment, interest rates and funding amounts can vary.

Term loans are offered by commercial real estate lenders, online lenders, and traditional banks, with banks providing the most difficulty to qualify. When it comes to credit scores, business history, down payment amounts, etc., online lenders can provide more leniency.


2. Small business administration (SBA) loans

Small business administration loans, or SBA loans, are government-backed, meaning the government will pay for a portion of your outstanding balance if you default. This arrangement provides the lender with an added layer of security and means lower interest rates for you.

Since they feature longer terms and lower interest rates, SBA loans are great for refinancing real estate and cover pretty much every kind of business expense. However, real estate investors are ineligible for SBA loans.

To qualify for an SBA loan, your business must meet these criteria:

  • Meet SBA size standards
  • Be a for-profit business
  • Operate within the U.S.
  • Have a need for financing
  • Have invested equity by business owners
  • Have no outstanding debt to the government
  • Not have any business owners on parole