Real estate often has the potential to be a lucrative investment. But just like any significant investment, real estate typically requires a big chunk of capital–capital that not all investors or real estate agents have on hand.
This is part of the reason why most savvy investors don’t invest with their own money. Instead, they leverage debt or, more specifically real estate business loans.
In this guide, we’ll walk you through the top four real estate business loans you can use to invest in your own property or a shared investment. We’ve handpicked these loans based on the following criteria:
- Reasonable interest rates
- Moderate to high maximum loan amount
- Flexible repayment terms
Let’s get started.
Best Real Estate Business Loans
Best Real Estate Business Loans Compared
| Business Loan | Best For | Starting Interest Rate | Maximum Loan Amount | Maximum Loan Term |
| SBA 504 Loan | Best SBA Commercial Real Estate Loan | 5-7% | $5.5 million | 25 years |
| J.P. Morgan Chase | Best For Flexible Loan Terms | 7% | $25 million | 30 years |
| Hard Money Loans | Best for Multiple Flip Projects | 10% to 18% | 65% to 75% of the property’s current value | 3 to 26 months |
| Landlord Loans | Best for Rental Property Investments | Varies | 75% to 80% of property equity | 5 to 30 years |
SBA 504 Loan
Starting off our list is one of the most reliable and high-value loans offered by the Small Business Administration (SBA): the SBA 504 Loan.
First things first, what exactly is an SBA 504 Loan? This loan program provides long-term, fixed-rate business financing of up to $5 million for major fixed assets that support job creation and business growth. You can access these loans through Certified Development Companies (CDC), which are community-based partners that are certified and regulated by the SBA.
With this SBA loan, you can borrow up to $5.5 million to purchase or construct existing buildings or land and new facilities. You can even use the funds for equipment financing, as the SBA allows you to buy long-term machinery or equipment with a remaining lifespan of at least 10 years.
However, the Small Business Administration does not allow borrowers to use 504 Loans as working capital loans, meaning you can’t use the funds to finance day-to-day expenses, such as wages or utilities. You can only use these loans for commercial real estate.
To qualify for this loan, the Small Business Administration requires your business to:
- Operate as a for-profit business in the US
- Have a net worth of less than $15 million
- Have an average net income of less than $5 million for the last two years before your application
- Have a minimum credit score of 680
Other eligibility requirements depend on individual small business lenders. Additional standards might include a good business plan, experience with commercial real estate, ability to repay the loan, etc.
J.P. Morgan Chase Commercial Term Loan
J.P. Morgan Chase lands on our list as the biggest commercial real estate financing company in the US. They provide flexible loan and payment solutions to property owners, real estate developers, investors, management companies, funds, and much more.
This lender stands out for its commercial lending program designed for multifamily properties, offering up to $25 million or more with a long loan life of up to 30 years. You can use this offering to finance a multifamily property with at least five units or more.
Plus, you can choose from a variety of repayment terms for commercial real estate loans, including fully amortized loans, balloon payments, and adjustable or fixed-rate commercial mortgage loans.
Aside from term loans, this lender also offers commercial real estate mortgage lending, which provides $1 million to $15 million for financing or refinancing industrial, office, retail, or mixed-use properties. On top of that, J.P. Morgan Chase also offers refinancing for commercial properties, syndicated financing, construction loans, and subscription lending.
To qualify for this commercial real estate loan, you must meet the following requirements:
- Operate in one of 13 major US markets
- Have been in business for at least two years
- Have a credit score of at least 680
Pro tip: J.P. Morgan Chase offers a business online banking app where you can manage your loans, business checking accounts, and other accounts easily. You can also track your loan application on their mobile banking app.
Hard Money Lender
What if you need funds fast? Or what if you don’t quality for a conventional loan? This is where hard money loans come in handy.
A hard money loan is a form of secured short-term financing that lets borrowers finance real estate. Unlike a traditional or commercial loan, hard money loans often have shorter loan lives (anywhere from 3 to 36 months) and are secured by the property or equity in question.
Most real estate investors and small business owners use this type of loan to finance multiple flip projects at once. However, a hard money loan can also be extremely useful if you want to buy a home but don’t qualify for a conventional loan. It can also be an option for people facing foreclosure but already have substantial equity on their home.
On the flip side, hard money loans often come with higher interest rates than bank loans. Some loans are structured as interest-only loans and are followed by large balloon payments. Hence, we only recommend this type of loan if you are comfortable with taking on that kind of risk.
Another thing to consider is that hard money loans are often non-recourse, meaning if you default on the loan, you simply forfeit the pledged asset. In this case, it’s the property you put down as collateral.
When it comes to requirements, hard money lenders use varying criteria to judge the creditworthiness of borrowers. This can include debt-to-income ratio, credit scores, and your investment profile.
Landlord Loans
A landlord loan is designed to provide financing for real estate investors that focus on rental properties. Generally, this type of loan is easier to qualify for than a conventional commercial loan and may have a lower interest rate than a hard money loan.
You can choose this type of loan if you’re strictly buying property to rent it out in the future. Generally, lenders offer landlord loans because buying a rental property is similar to investing in a small business; you’re property will act as a long-term investment, which, in turn, will generate rental income. The income you receive from your property is something that a lender sees as something credible to finance, much like a business.
However, it’s important to keep in mind that the average lender will not finance the entire property. Generally, a lender can offer financing of up to 80% of the property value, meaning you’ll need to come up with the remaining 20% yourself. It’s much like applying for a mortgage where you put a portion of the property’s value down.
Another crucial factor to consider is that rental properties won’t automatically fill up with tenants, which is why important to have financial wiggle room while you go through the rental process. We recommend saving the first three to six months of your loan payment whether or not you find a tenant right away.
So, what about the lender requirements?
Like hard money loans, the qualifications and interest rates for landlord loans can vary, depending on the lender. Some offer funding only for landlords with W2s, while others don’t require full-time income at all. Other things lenders consider might include your credit score, debt-to-income ratio, and your real estate portfolio (i.e., how many rental properties you currently have and if you have other investments like commercial real estate).
Our financial experts highly recommend finding an Equal Housing Lender to ensure you go through a fair process when applying, whether you’re going for residential or commercial real estate loans.
How Credit Suite Can Help You
Are you looking to invest in a commercial property? Why not use business credit to buy real estate instead of a personal loan from a traditional lender?
This process might seem complicated, especially if you’re a beginner, which is why Credit Suite offers multiple solutions to let you expand your business with real estate.
Credit Suite can help you build your business credit or business savings to qualify for traditional loans, open a credit line hybrid or business debit card, leverage your business credit card, and even access alternative forms of financing for commercial real estate and better wealth management. These include merchant service financing, inventory financing, equipment financing, and other flexible financing options.
Talk to a Credit Suite representative today to learn more about your options!
FAQs
Can you use an SBA loan to buy a commercial property?
Yes. There are two loans that allow you to do this: the 7(a) loan and the 504 loan. The (7a) loan is more suitable if you don’t meet job creation or public policy objectives and want to use the loan for other expenses. On the other hand, the 504 loan is better for you if you only want to fund real estate and meet the growth and job creation goals of the loan.
However, note that you can only use a small business loan to fund commercial real estate that is going to be used for business, meaning you can’t use it as a residential loan.
Can you take a commercial loan from your business to buy a house?
Yes, you can use your business line of credit to buy a residential property. Alternatively, you can use your small business’ finances to qualify for a traditional loan or business loan. However, you must use the residential property for commercial purposes if you’re taking out a commercial real estate loan.
Taking out commercial real estate loans as a small business owner is a good idea if you’re an experienced investor. Otherwise, you may meet extra expenses and capital gains exemption losses if you buy it in your own name as an inexperienced investor. We highly recommend setting up an LLC if you want to buy a new house to flip, rent out, or resell in the future.
Whenever possible, use financial calculators a potential lender offers to see how much you’re going to be paying.
What is the maximum amount for a 504 loan?
SBA 504 loans are typically capped at $5 million. Some energy-efficient or manufacturing properties may qualify for loans up to $5.5 million. Investors who qualify for the latter can receive funding for up to three commercial property projects that don’t exceed a total of $16.5 million.
Of course, the loan amount you qualify for will depend on other financial factors and your lender’s discretion. You can consult a certified SBA lender to see if you qualify, and, if so, how much you can borrow as a small business.
