Business and Commercial Loans

KeySavings Bank’s loan officers do the underwriting on commercial real estate (CRE) loans, so clients always speak with a decision-maker. Here at KeySavings Bank, we are lending with a zero-origination point program. Our reputation is to close on time, every time. Since we are a portfolio lender, our team in innovative and looks for ways to make loans happen.

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Commercial Real Estate          Small Business Administration         Business Lines of Credit        Bridge Loans      Commercial Leasing

Commercial Real Estate (CRE) loans

A commercial real estate loan (CRE) is a type of mortgage that businesses and individuals use to finance commercial spaces like offices, warehouses, or even income-producing properties. Commercial real estate loans, also known as CRE loans, work by letting individuals and business owners use the property to secure the loan. In other words, your lender will have a legal claim to the property until you pay off your loan.  

Just like a traditional residential mortgage, a portion of your payments on your commercial real estate loan will go towards equity in the property. You’ll also pay a portion towards interest. Over time, you’ll continue to build up equity in the property until you own it outright. Once this happens, you’ll have no other obligations. 

The main difference between a commercial real estate loan and a residential loan is the interest, which is generally higher for commercial loans. Commercial loans are also typically amortized in less time, ranging from 5 to 20 years, while the amortization period for residential loans can go up to 30 years.

In both commercial real estate loans and residential loans, the property itself will act as collateral for the loan. However, there are still a couple of distinctions between these types of financing products. 

For starters, commercial real estate loans are usually made to business entities, like corporations and limited partnerships. Commercial loans are also typically shorter than consumer mortgages and feature terms ranging from five years to 25 years. In some cases, the amortization period on a commercial real estate loan can be longer than the term of the loan.

Commercial loans also feature loan-to-value ratios within the 70% to 80% range, which is typically significantly lower than loan-to-value ratios on consumer mortgage loans. 

What is the difference between CRE loans for individuals vs. entities?

Residential mortgages are most often made to individuals, while commercial real estate loans are typically made to business entities. This includes corporations, developers, limited partnerships, funds, and more. For many of these entities, their sole purpose may be to own and manage commercial real estate.

If you own or operate an entity interested in taking out a commercial real estate loan, know that we may require you and other owners to personally guarantee the loan. This is common if you haven’t been in business long, or if your business doesn’t have the financial track record to qualify.

Sometimes, this type of guarantee may not be required and the property itself will be the only means of recovery in the event of loan default. In this case, the commercial real estate loan is called a non-recourse loan. This means the lender has no other options to recover the funds in case of default, aside from the property.

What are The Main Types of CRE loans?

There are 4 main types of commercial real estate loans that businesses can choose from: term loans, SBA loans, bridge loans and business lines of credit. They are typically used when funds are needed quickly, or when there are bridge gaps in long-term financing. These types of commercial real estate loans will vary in rates, terms and funding time.

Depending on the needs of your business and your qualifications, one type may work better than another. 

Create links for          Term Loans      Small Business Administration         Business Lines of Credit          Bridge Loan

Term Loans 

The first one of the most popular types of commercial real estate loans are terms loans. Term loans are what most people think of when they picture a business loan or any type of loan for that matter. They provide a lump sum of capital you’ll repay over regular installments.

Term loans for commercial real estate financing have long repayment periods, typically up to 5 years or more. These loans also feature an amortization period that can sometimes be longer than the term of the loan.

Funding amounts and interest rates can vary depending on the specific property you’re looking to finance, the amount of capital you have for a down payment, and your own financial criteria.

Term loans are offered by traditional banks, online lenders, and commercial real estate lenders. Different lenders will have their own qualification requirements for this type of financing. Generally, it’s more difficult to secure financing from a bank.

Online lenders can be more lenient, especially when it comes to credit scores, down payment amounts, business history, and more.

What Types of Properties can be used as Collateral?

• Office
• Warehouse
• Light industrial & flex
• Retail
• Light manufacturing
• Medical office

Small Business Administration (SBA) Loans

Small Business Administration (SBA) loans are government-backed. In other words, the government agrees to cover a portion of your outstanding balance in case you default. This gives us an extra layer of security – which translates to lower interest rates on your end.

SBA loans are ideal for financing commercial real estate because they feature low-interest rates and lengthy terms. Although SBA loans can be used to cover just about any type of business expense, they are especially common for real estate financing.

Real estate investors are not eligible for SBA loans. To qualify for SBA funding, your business will have to meet a number of requirements, such as the SBA’s size standards. You’ll also have to meet the following criteria:

• For-profit business
• Located and operated within the United States
• Business owners must have invested equity
• Demonstrable need for financing
• Zero outstanding debt to the U.S. government
• Business owners can’t be on parole

There are two main SBA loan programs that would allow you to secure commercial real estate financing. The first one is the SBA 7(a) loan, and the second one is the SBA 504 loan.

SBA 7(a) loans

The most popular SBA program, 7 (a) loans, feature funding amounts as high as $5 million. These loans can be used for a large variety of business purchases and have inherent flexibility.

They’re especially fitting for purchasing real estate, land, construction costs, renovation, refinancing debt, and more. Repayment periods can range between 10 to 25 years.

504 loans

Another popular long-term, fixed-rate financing program from the SBA. 504 loans feature financing amounts as high as $5 million to be put towards major assets that promote a business’s growth.

Funds can be used to purchase commercial real estate, machinery, and equipment. These loans can also cover renovations on an existing commercial property or equipment upgrades. You can even use a 504 loan to refinance certain commercial real estate loans.

Business Line of Credit

One of the most common types of commercial real estate loans are business lines of credit. They are oftentimes compared to credit cards. They work similarly, however,  lines of credit feature higher funding amounts and lower interest rates. Plus, this funding type is very flexible. 

A business line of credit, especially one that is “revolving”, allows you to use and reuse borrowed capital. You’ll be granted a set credit limit, which you’ll be able to borrow from as needs arise.

There’s no pressure to start using the funds right away, and you’ll only have to pay interest on what you borrow. As you pay off your balance, funds will become available to use again and again.

The only downside is that business lines of credit don’t have a set repayment schedule, and interest rates can be higher than traditional term loans. Nevertheless, their inherent flexibility helps make up for these drawbacks.

Business lines of credit are ideal when you don’t know the exact costs of a certain project or renovation. They can also be used to fund other types of business expenses, such as operating costs.

Bridge Loans

Bridge loans are a kind of short-term financing solution that provides an influx of cash until borrowers secure a more permanent type of financing. They’re frequently used by businesses and homeowners that need funds to purchase a property but are also waiting on another property to sell.

Bridge loans can help you cover cash flow gaps during times when financing is needed, but not yet available. They’re also frequently used when a company has to repay one loan but hasn’t received the new, permanent loan yet.

Bridge loans have short repayment terms, typically up to one year or less. They are not a long-term funding solution, such as a term loan or SBA loan. Instead, bridge loans are meant to mitigate cash flow gaps, until a long-term solution comes into play or the immediate issue passes.

You can use a bridge loan to cover the costs of purchasing a property, as you wait for another property to sell or for another type of capital influx to kick in. This one of the common types of commercial real estate loans can also be used to smooth over the refinancing process, as you wait for funds from your new loan to deposit.

Commercial Leasing