Investing in commercial real estate is a big risk to take and can have a great outcome or a very poor outcome. If you want to avoid making a mistake or experiencing regret after investing in commercial real estate, then it is important for you to find out as much as you can about commercial real estate financing before you make the jump and take on serious debt in order to make your real estate dreams a reality. There are many different financing options you can choose from for your real estate investing endeavors, but they are not all created equal. Here are a few things you should know about the top commercial financing options that you will need to choose from for your real estate financing needs.

CMBS Loans

CMBS loans (also known as commercial mortgage backed securities) have been around for more than 30 years, but there are many individuals and business owners who are still unaware of what these loans are for. A CMBS loan is also called a conduit loan which is pooled and then relocated to a trust. Each month, investors receive the accrued interest from the pooled loans. Investors who hold bonds that are rated the highest are paid first from the accrued bond interest. After the highest-rated bonds are paid out to top investors, interest is then paid to investors who hold the next highest-rated bonds. This structure continues downward until all of the accrued interest from the bonds has been paid out. This type of payment structure is sometimes called a “waterfall” payment structure.

SBA 504 Loans

Another type of commercial real estate financing loan option is the SBA 504 loan, which is meant to provide financial assistance for borrowers who want to purchase fixed assets (such as real estate, machinery, and buildings) for rates that are below-market. In order to qualify for this type of loan, borrowers must operate as for-profit, may not be involved in investment or speculation in rental real estate, must not have the necessary funds from any other sources, must agree and be able to repay the loan within the predetermined time period, have a realistic business plan, and have relevant management expertise. For additional information about eligibility requirements for SBA 504 loans, talk to a commercial real estate financing company.

Mezzanine Financing

Mezzanine financing refers to debt capital which is designed to give the lender power to convert to an ownership or receive equity interest in the borrower’s company if the loan amount is not repaid in full by the pre-established deadline. It is a bit of a hybrid type of equity and debt financing and is normally utilized to finance growth and expansion for existing companies. This type of financing is normally offered very quickly, and there is very little documentation required from the borrower or due diligence performed by the lender. Borrowers who want quick commercial real estate funds can typically receive rapid approval for mezzanine financing.


Scroll to Top