Types Of Commercial Lending For Real Estate Investors


Types Of Commercial Lending For Real Estate Investors

This BLOG On Types Of Commercial Lending For Real Estate Investors Was UPDATED On November 1st, 2018

Commercial Lending is totally different and separate than residential lending.

  • There are many different types of Commercial Lending just like there are various types of Residential Lending
  • Many borrowers often assume that just because a loan officer is a residential mortgage loan originator that they are knowledgeable in all types of commercial lending
  • This is not the case and many residential loan officers are clueless when it comes to the various types of commercial lending
  • There are loan officers who do both;
    • Residential Lending
    • Commercial Lending

Many residential mortgage companies are now offering  Non-QM Loans as well as non-traditional types of financing and expanding into different areas and types of commercial lending.

Regulations On Commercial Mortgages

Commercial Lending is not regulated by the government like residential lending is.

  • Regulators feel that commercial real estate investors are sophisticated investors and the buyer’s beware theme comes into play
  • There is no SAFE ACT, NMLS, or CFPB when it comes to the regulations of commercial loans and the various types of commercial lending
  • Commercial Loans does take longer to process
  • It can take up to 90 or more days to process a commercial loan from start to finish

Various Types Of Commercial Lending

Gustan Cho Associates wants to be your one stop mortgage and real estate information resource center.

  • Our goal is to offer our viewers and clients contact information and referral partners to not just residential lenders but also commercial lenders as well as specialty lending sources
  • We have carefully selected and screened our staff writers and referral partners with the goal of creating a one stop lending and real estate information center in the United States
  • There are different types of Commercial Lending Programs and we will take some time in explaining each type of commercial lending program on this blog

Popular Types Of Commercial Lending

Here are the types of commercial lending specialties out in the market today:

  • Business Loans Through Small Business Administrations:
  • Asset Based Lending:
    • Asset Based Lending is a type of commercial lending where a business loan is securitized by the borrowers assets and collateral
    • Asset Based Lending is a secured type of lending
    • So interest rates on these types of commercial lending is rather lower than unsecured business loans
    • Accounts Receivable Financing is an example of Asset Based Commercial Lending
  • Types Of Commercial Lending That Is Cash Advanced:
    • Cash Advanced Commercial Lending is similar to Pay Day Loans for consumers
    • Cash Advance Financing normally funds in a week or less
    • They are for borrowers who need quick cash for one reason or another

Traditional Versus Hard Money Loans On Commercial Real Estate

Interest rates are very high and these types of commercial lending is considered short term bridge financing where the borrowers needs it for a short term basis:

  • Factoring :
    • There are different factoring types of commercial lending and we will cover more on factoring on other upcoming blogs
  • Private Money Loans/Hard Money Loans 
    • Private Money Loans or Hard Money Loans is a quick way of getting fast financing at a higher interest rate
    • Normally is a great tool for short term or bridge financing
    • Hard Money Loans are not based on credit nor income and the hard money or private money lender is more concerned about the borrower putting skin on the game
    • Down payment, LTV (Loan To Value) is key with hard money loans
    • Hard Money Loans do not require the mass amount of paperwork traditional commercial lenders require
  • Church Lending:
    • Church Financing are specialty types of commercial lending where lenders will only lend to churches

Commercial Lenders/Brokers

Commercial Loan Officers are not regulated like Residential Mortgage Loan Originators.

  • In most states, you do not have to be licensed to become a commercial loan officer or commercial loan broker
  • When a commercial loan officer works a commercial loan, the loan officer works as an intermediary agent representing the borrower and taking the deal to his or her commercial lending institution
  • A commercial mortgage broker is an individual and/or company who has access to a list of direct commercial lenders
  • They have a fee agreement with the direct commercial lender
  • A commission is paid to the commercial broker at closing
  • This ranges anywhere between 1.0% to 5.0% or more
  • This commission is paid by the borrower
  • A separate fee agreement is signed by the commercial borrower and commercial broker
  • The direct lender is aware of this fee agreement
  • They will list the broker fee from borrower and pay the loan officer
  • There are times where borrower can pay the broker’s fee directly to the loan officer
  • Every commercial deal can be different and unique
  • This is since there is no mortgage regulations with commercial loans
  • Every commercial deal can be negotiated between borrower, loan officer/broker, and direct commercial lender

If you are a commercial borrower looking for commercial lenders who may be the right fit for you, contact Gustan Cho Associates at gcho@gustancho.com or call Gustan Cho at 262-716-8151 or text for faster response. Or email us at gcho@gustancho.com.

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