Business Loans To Buy Real Estate
Using a business loan for rental property can help you grow a real estate portfolio by providing funds to purchase single or multiple rental properties and provide money for renovations and upgrades to increase rental income.
business loans to buy real estate
Traditional banks, credit unions, and private lenders offer business term loans. There are many term loan options with different loan sizes and interest rates. Term loans for businesses provide funds to buy equipment, update office space, and purchase real estate. Funds are received in one lump sum and paid back over a period of time, typically with a fixed interest rate.
Short-term loans, sometimes known as bridge loans, usually have a repayment term of 12 months or less and may be a good option for purchasing a rental property quickly before seeking a traditional bank loan. Medium-term business loans typically have terms ranging from 1 to 5 years, while long-term business loans may have terms of up to 25 years.
Portfolio loan options vary from one lender to the next and typically include loans with fixed and adjustable-rate permanent financing, short-term bridge loans, and business lines of credit. Provided a borrower can repay the loan, there are generally no limits to the number of rental properties a business can finance.
As with private money loans, portfolio loan interest rates and fees are typically higher than traditional forms of financing. They may also be nonrecourse, so they do not require a business guarantee or a borrower's personal guarantee.
A blanket mortgage allows a business entity to finance multiple rental properties under a single loan rather than holding individual mortgages for each property. Generally speaking, the underlying assets serve as collateral to secure the loan, making blanket mortgages a popular option for real estate developers and businesses buying multiple rental properties.
The SBA offers 2 small-business loan programs for businesses purchasing real estate, SBA 504 and SBA 7(a). However, neither can be used for speculation or investment in rental real estate nor to purchase property held for investment purposes.
The SBA 7(a) loan program provides short- and long-term working capital for small-business owners and is the best option when real estate is part of a business purchase, according to the SBA. The maximum loan amount is $5 million. Primary uses for funds include purchasing real estate, building or renovating an existing building, acquiring a new business, or expanding an existing business.
Business loans for rental property are found through various sources, including traditional, private, and portfolio lenders. There are options for acquiring new rental property, renovating existing rentals, and expanding a real estate investment portfolio. As with any other type of financing, a business owner should take the time to analyze the pros and cons of each loan option and seek the advice of a certified public accountant (CPA) or financial advisor.
Jeff has over 25 years of experience in all segments of the real estate industry including investing, brokerage, residential, commercial, and property management. While his real estate business runs on autopilot, he writes articles to help other investors grow and manage their real estate portfolios.
Conventional business loans are available for real estate purchase as term loans from banks Businesses needing more than $250,000, as well as those with good credit and heavy capitalization, are good fits for conventional small business financing.
One of the best options for small business owners is a Small Business Administration (SBA) loan. These are government-guaranteed loans made to borrowers by financial institutions and generally have lower rates and more flexible terms.
SBA 504 loans are often called SBA Commercial Real Estate Loans and can be used for purchasing an existing building, land or land improvements, or constructing or renovating facilities. This flexibility makes an SBA 504 loan an effective option for a real estate loan.
Be sure and shop around for the best rates and terms for your business when seeking commercial real estate financing. Different lenders can offer unique products to suit your business, and both banks and non-traditional lenders can help guide you during the application process.
Community Development Financial Institutions (CDFIs) are a specialized source for small business financing. These mission-driven organizations are dedicated to improving communities through small business investments, and real estate purchases can have a transformational impact on communities that need to create jobs.
For the limited time beginning with new credit applications submitted October 3, 2022 through April 14, 2023, take advantage of the following promotion:A waiver of certain fees for the approved qualifying fixed and variable rate secured term loans. These fees may be categorized as loan origination, loan packaging, loan processing, bridge, permanent, administration, or miscellaneous fees, depending on the approved product. Any and all fees or costs not specifically waived shall apply and will be due and payable by you at or before closing.
Bank ordered appraisal fees on approved qualifying commercial real estate secured term loans will also be waived (however, appraisal fees not directly ordered by Bank of America will not be waived or paid by Bank of America). Owner occupied commercial real estate will be determined in underwriting and requires occupancy by the borrower/guarantor. Please note SBA guidelines require at least 51% occupancy to be considered Owner Occupied.
Any and all fees or costs not specifically waived shall apply and will be due and payable by you at or before closing.
To be eligible for this promotion, the qualifying secured term loan must close and fund by October 13, 2023. This offer is only for qualifying secured term loans described above with a minimum approved amount of $100,000 and a maximum approved amount of $5,000,000 (unless otherwise permitted for certain products). All credit terms and repayment structures are subject to credit approval. Bank of