Commercial Loan Types

Commercial Loan Types

Life Insurance Company Loan Programs

Loans provided by a life insurance company are secured by a first lien position on the subject property. These loans are typically best suited for transactions that have strong borrowers with good credit, well-maintained properties, low leverage, and where the collateral is situated in or around a major MSA.

  • Minimum loan amount: $1 million
  • Loan-to-value: 60% to 75%
  • Terms vary from 5–25 years
  • 15- to 30-year amortization
  • Minimum debt coverage ratio: 1.25 to 1.35
  • Prepayment penalty
  • Recourse, partial recourse, and non-recourse options
  • Loans are assumable
Fannie Mae/Freddie Mac Loan Programs

Fannie Mae and Freddie Mac offer federally guaranteed mortgages. Loan collateral may be traditional apartments, affordable housing, senior housing, student housing, and manufactured housing communities. Loans can be used for a purchase or refinance, as well as the construction or substantial rehabilitation of multifamily properties.

  • Minimum loan amount: $1 million
  • Loan-to-value: Up to 80%
  • Terms between 3–30 years
  • Amortizations up to 15–40 years
  • Prepayment penalty
  • Non-recourse, except standard carve-outs
  • Loans are assumable for a 1% fee, assuming the borrower qualifies
CMBS/Conduit Loan Programs

A CMBS loan, also known as a conduit loan, is a loan that is secured by a first-position mortgage on a commercial property. These loans are packaged and sold by conduit lenders. A CMBS loan has a fixed interest rate (which may or may not include an interest-only period) and is typically amortized over 25–30 years, with a balloon payment due at the end of the term.

  • Minimum loan amount: $2 million
  • Loan-to-value: Up to 75%
  • 5-, 7-, and 10-year fixed rate terms (balloon at end of fixed term)
  • 25- and 30-year amortizations
  • Minimum debt coverage ratio: 1.25
  • Prepayment: Defeasance or yield maintenance
  • Non-recourse, subject to standard carve-outs
  • Loans are assumable
  • Cash-out refinances depending on property quality
  • Rate lock at commitment
Conventional Loan Programs

Conventional commercial real estate loan programs provide financing for both owner-occupied and investor properties. Clients may refinance their commercial mortgage loan or purchase a commercial property with conventional loans featuring low fixed or variable rates, terms up to 15 years, and 75% leverage.

  • Minimum loan amount: $1 million
  • Loan-to-value: Up to 75%
  • 3-, 5-, 7-, 10-, and 15-year terms
  • 15-, 20-, 25-, and 30-year amortizations
  • Minimum debt coverage ratio: 1.25
  • Prepayment penalty to be determined
  • Recourse and non-recourse options
  • Cash-out refinances available
SBA Loan Programs
  • Minimum loan amount: $500,000
  • SBA portion: Up to $5 million
  • Loan-to-value varies; up to 90%
  • Minimum debt coverage ratio: 1.25
  • Terms vary; up to 25 years
  • Prepayment penalty
  • Fixed or variable rates
  • Recourse required
  • Eligibility: Owner-occupied 51% or more, and business must be for-profit
  • No convenience stores, gas stations, or hospitality
SBA 7(a) Program

SBA 7(a) loan proceeds can be used for working capital and to purchase an existing business, refinance existing business debt, or purchase furniture fixtures and supplies.

7(a) loans are provided by authorized commercial lenders. The participating lender funds the loan and receives a guarantee of up to 75% of the loan amount from the SBA. All 7(a) loan applicants must meet the program's eligibility requirements. Repayment ability from the cash flow of the business is a primary consideration in the SBA loan approval decision process, but good management, collateral, and the owner's equity contribution are also important considerations.

SBA 504 Program

The SBA 504 program is for the purchase of fixed assets such as commercial real estate and machinery and equipment of a capital nature, which are defined as assets that have a minimum useful life of 10 years. Proceeds cannot be used for working capital. An SBA-approved lender lends a conventional first mortgage loan of approximately 50% LTV. The SBA fixed-rate second mortgage loan is 40% of the loan amount. The borrower will be required to contribute the remaining 10%. If the property is considered special use, a 15% to 20% contribution will be required. Special use properties include gas stations, motels, and assisted-living facilities.

Bridge Loan Programs

A bridge loan is a short-term real estate loan for borrowers who need interim financing before they secure long-term financing or sell the property. Typically, bridge financing will close in a shorter time frame than traditional financing, with some loans closing within a week.

  • Minimum loan amount: $1 million
  • Loan-to-value: Up to 75%
  • Terms from 2–36 months
  • No prepayment penalties
  • Recourse required
  • Loan fees: 3% and up
  • Interest-only payments
  • Rates vary from 6%
Construction Loan Programs

The purpose of a construction loan is to fund the costs associated with the construction or renovation of a building and to fund the interest on the loan during the construction period and initial lease-up.

Upon completion of the construction and the lease-up of the property, permanent financing will be secured to retire the construction loan. Sometimes both types of financing are committed by the lender, which is referred to as construction to perm. In this case, the lender is committing to fund the project from construction to market stabilization. The construction permanent mortgage will often amortize on a 20- or 25-year schedule with a balloon payment or maturity 10 to 15 years after it converts to a permanent mortgage.

  • Minimum loan amount: $1 million
  • Loan-to-value: Up to 75%
  • Construction term: Up to 24–36 months
  • LTC: Up to 85%
  • Interest-only payments during construction period
  • Recourse during construction and lease-up period
  • Construction to perm with a one-time close available when requirements are met
FHA/HUD Loan Programs

FHA loans are federally guaranteed and can be used for a purchase or refinance, as well as the construction or substantial rehabilitation of multifamily or healthcare properties. FHA loans are available nationwide for any market (primary, secondary, tertiary).

  • Minimum loan amount: $5 million
  • Loan-to-value: Up to 80%
  • Terms are fixed for 30–40 years
  • Amortization up to 30–40 years
  • Prepayment penalty
  • Non-recourse, except standard carve-outs
  • Loans are assumable for a 1% fee, assuming the borrower qualifies
Multifamily Loan Programs

The FHA’s multifamily loan programs are for the purchase, refinance, construction, or rehabilitation of traditional, affordable, senior, cooperative, or manufactured housing communities. Properties must be in good condition (for a purchase or refinance) and not be more than 30–40 years old, unless substantially rehabilitated. Borrowers must have previous FHA ownership/management experience if they are managing the property themselves, or they must hire an FHA property manager unless an FHA waiver is attained.

Healthcare Loan Programs

The Office of Healthcare Programs manages Section 232 for Residential Care Facilities and Section 242 for Hospitals. Both loan programs enable affordable financing of healthcare facility projects. These programs reduce the cost of capital needed by hospitals and residential care facilities.