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Commercial real estate finance is different than commercial finance. Commercial finance includes not only commercial real estate loans, but also business loans secured by personal property. Therefore commercial real estate loans are just a subset of commercial finance.
As the name implies, a commercial real estate loan is a loan secured by either a rental property, such as an apartment building, office building, or shopping center, or by some sort of business-related property, such as a hotel, bowling alley, or self storage facility.
The term "commercial loan" and "commercial finance" includes both commercial real estate loans and business loans secured by personal property. One example of a business loan secured by personal property might be a loan to a surfboard manufacturer secured by its inventory of completed surfboards that are ready to be shipped out to some surf shops. Another example might be a business loan to a grading contractor secured by his collection of backhoes and skid loaders.
A business loan might even be secured by receivables. For example, a dress manufacturer might ship its dresses out to dress shops, with payment expected within 60 days. Once the dresses have been shipped and their delivery has been accepted, the promises made by the dress shop owners to pay for the dresses are known as account receivables. A bank might make a short term commercial loan to the dress manufacturer secured by its receivables.
So a commercial real estate loan is just one kind of commercial loan.
Commercial real estate loans are made by about six classes of lenders. The best known class of lender that makes commercial real estate loans includes banks, savings banks, and saving and loan associations (S&L's).
Large banks make large commercial real loans. Small banks make small commercial real estate loans. It's a deceptively simple concept, but it's important. You usually won't want to take a $200,000 commercial real estate loan request to a bank the size of Bank of America. Conversely, you won't want to take a $15 million commercial real estate loan request to the small Bank of the Northeast Corner of Tiny Town.
The second most important class of lender making commercial real estate loans these days is the conduit or CMBS lender. CMBS stands for commercial mortgage-backed securities. A conduit makes commercial real estate loans according to a very precise cookie-cutter. A large number of these cookie-cutter commercial real estate loans are then assembled into a portfolio, assigned to a trust, and then securitized. Conduits offer terrific rates on commercial real estate loans, but their loans have lock-out clauses and huge prepayment penalties.
The third class of lender making commercial real estate loans are the life insurance companies. Historically life insurance companies have always offered the very cheapest commercial real estate loan rates, but convincing them to make you a commercial real estate loan is very difficult. They usually only want deals on the top 10% most desirable properties in the largest cities, and they seldom will go higher than 60% to 68% loan-to-value. You might work an entire lifetime as a commercial mortgage banker and never successfully close a commercial real estate loan with a life company. In addition, the conduits have been stealing much of the market from life companies because they offer much higher leverage.
The fourth class of lender making commercial real estate loans are the real estate investment trusts (REIT's). Mortgage REITS are making far fewer commercial real estate loans than in the past, and those few loans that they are making are fairly high-cost bridge loans.
A surprising fifth class of commercial lender is credit unions! Five years ago, fewer than a dozen credit unions were making commercial real estate loans. Today over half of all credit unions will make commercial real estate loans - most commonly small balance loans, deals of less than $3 million. There are over 7,000 credit unions in the the United States.
The final large class of lenders making commercial real estate loans are the hard money lenders. Using the funds of wealthy private investors or mortgage investment pools, hard money lenders have been making a ton of commercial real estate loans in recent years. These commercial real estate loans are usually very expensive, but a desperate borrower can often obtain a commercial real estate loan from a hard money lender in a matter of a few weeks.
You are reminded that C-Loans is a commercial mortgage portal where a user can apply for a commercial real estate loan to any one of 750 different commercial mortgage lenders in just four minutes using a very simple mini-app. And C-Loans is free. If you need a commercial real estate loan right now, please click here.
- Will I qualify for a commercial loan?
- What interest rate do commercial lenders charge?
- What kinds of lenders make commercial loans?
- Where can I find a good commercial loan?
- What types of commercial lenders offer the lowest rates?
- Who is making commercial loans today?
- How large of a commercial loan can I get?
- What is the difference between a home loan and a commercial loan?
- How do commercial loan rates compare to home loan rates?
- Please read this before you apply for a commercial loan.