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Best Commercial Real Estate Loans for Bad Credit
Small business owners with poor credit will face limited options when it comes to commercial real estate financing. Many online lenders don't allow their loans to be used to purchase property, so business owners will need to consider hard money lenders, too (which we cover below).
SnapCap is one of the few online lenders that will let you use a loan to purchase property. This lender also doesn't have high credit score requirements, so it's a good option for low-credit borrowers. Through SnapCap, you can borrow up to $600,000 for three to 36 months, and you can use the funds to purchase or fix up real estate. While annual percentage rates (APRs) can be high, you will only need a minimum credit score of 550 to apply. Your business will need to be at least nine months old with roughly $100,000 or more in annual revenue. Your average monthly bank account balance should be at least $1,000, and you should get at least five unique deposits to that account each month. You will also be required to personally guarantee the loan. You can typically get funds within one to two days after being approved for a loan.
Drawbacks: APRs are on the higher side, even when compared to other alternative lenders. You will also not be able to finance a large real estate transaction, as the maximum allowed loan amount is $600,000.
We recommend Credibly as an affordable option if you need to fix up an existing property. While Credibly offers both working capital and business expansion loans, we suggest the working capital loan for applicants with low credit scores. For its working capital loans, Credibly accepts applications from small business owners with personal credit scores as low as 500 (the business expansion loan requires a minimum FICO score of 650). You'll also need to be in business at least six months with $10,000 in monthly revenue. In addition to these criteria, Credibly has requirements regarding the activity in your business bank account—namely the dollar amount of deposits each month and the average daily account balance.
The rates on these loans are on par with those of other lenders that have similar eligibility criteria as Credibly. Instead of an APR, the company quotes rates for its working capital loans as a factor rate. This means that if a $100,000 loan has a factor rate of 1.3, the total amount repaid is $130,000 (1.3 x $100,000). These loans are offered in terms of six to 17 months and amounts of up to $250,000, which is roughly how long it takes and how much it costs to complete a modest remodeling project.
Drawbacks: Credibly does not allow borrowers to use loans to purchase or build property, but you can renovate any commercial property you already own. Repayment on the working capital loan is daily or weekly, which some business owners might find overwhelming.
Consider a Hard Money Lender
In the world of commercial real estate financing, hard money lenders are known for caring less about a borrower's credit score and more about the value of the property financed. While the terms on a hard money loan won't be as attractive as those of a conventional commercial mortgage, you typically won't be turned away by a hard money lender if you don't have a great credit score. As long as the property has value—whether that's initial value or after-repair value—you will have a good chance at securing a loan. Most hard money lenders can also close much faster than a bank or traditional lender, so these loans are also good to consider if you need to purchase a property quickly.
Because hard money lenders evaluate the property more so than the borrower, interest rates and down payments will be higher. A typical hard money loan may have an interest rate between 10% and 20% and require a down payment of 25% to 50%. Terms are often shorter, too; many hard money loans carry terms of one year and require interest-only payments with a final balloon payment at the end of the term. Hard money loans are generally made by private companies, such as Patch of Land or Lima One Capital.
Best Commercial Real Estate Loans for Good Credit: SBA 504 Loan
For commercial real estate financing, you likely won't find a better deal outside of a Small Business Administration (SBA) 504 loan. There are two key factors that make this loan program outstanding: low down payments and below-market fixed interest rates on a portion of the loan. Generally, you will only need to put down 10% to get a 504 loan. For comparison, most banks require at least 20% to 25% down for commercial real estate loans. The 504 loans are composed of two loans, and one of these loans has a fixed interest rate. A bank will lend 50% of the loan amount, and a Certified Development Company (CDC) will lend the remaining 40%. The interest rates on the CDC loan are fixed for the life of the loan, and current interest rates rates have been below market at around 4.65%. Interest rates on the bank loan are determined by your bank, and they will normally be variable.
Another reason to check out this loan program is that it's open to new and existing businesses, though startups will have a higher down payment requirement. Because these loans are backed by the SBA, you may be able to qualify even if you don't have a credit score of 720 or higher. To apply for a 504 loan, you'll need to start with a bank or credit union in your area. Together, you will submit an application to the appropriate CDC in your state.
Best Investment Property Loans: Bank Loans
While 504 loans are a great choice, they are only available for businesses that plan to occupy a majority of the space they buy (referred to as "owner-occupied commercial real estate"). If you're looking to buy investment property, then you should consider a loan from a bank or credit union, as they will offer low interest rates and large loan amounts. National and regional banks and credit unions such as Wells Fargo, U.S. Bank, PNC Financial Services Group and Navy Federal Credit Union offer specific loans for investment real estate. In many cases, you won't need to be a customer of the bank or credit union to apply for these loans. Rates and terms will vary by bank, though we have found that interest rates generally range from 3% to 14%. Many banks will offer borrowers the choice between fixed or variable interest rates, with average terms from five to 25 years. Borrowers will also be required to make a down payment, frequently 20% or more of the property's value.
Drawbacks: Some banks will only make investment property loans for residential properties, such as single-family homes, multifamily units or apartment buildings. You'll need to speak with the bank to see what kinds of properties they'll accept. For some of these loans, the amortization period may be longer than the loan term, which means you'll have to make a final balloon payment to pay off the loan.
Best Commercial Real Estate Loans for Quick Renovations: Fundation
Fundation can provide money in as fast as one business day from loan approval, but it also offers reasonable rates and terms and has clear-cut eligibility requirements. Unlike many alternative lenders, Fundation doesn't require daily or weekly repayment—instead, you'll make payments twice a month. It also offers terms up to four years with loan amounts up to $500,000. To qualify, Fundation asks that borrowers and their businesses meet the following criteria: one year in business with at least three employees and $100,000 in annual revenue, and the business owner's personal credit score must be at least 620. Given the competitive rates and terms, we think these are relatively lenient requirements.
Drawbacks: The minimum amount you can borrow through Fundation is $20,000, so it's not ideal for very small renovation or rehab projects. If you need less, you might want to consider a microloan or a personal loan. Fundation loans cannot be used to purchase commercial real estate.
Summary of Our Picks
In this table, we've summarized our findings of the best commercial real estate loans and mortgages to help borrowers make a quick comparison.
|Best for...||Lender/Loan||Rates||Loan Amounts|
|Borrowers with poor credit||SnapCap||19.99% - 49.99%||$5,000 - $600,000|
|Credibly||1.15x - 1.49x||$5,000 - $250,000|
|Borrowers with fair or better credit||SBA 504 loan||4.64% - 4.65%||Up to $10 million|
|Purchasing investment property||Bank loan||Vary||Up to $3 million|
|Renovation or remodeling||Fundation||7.99% - 29.99%||$20,000 - $500,000|
How to Get a Commercial Real Estate Loan or Mortgage
Purchasing real estate for your business is one of the largest and most important expenses you'll make as a small business owner. Getting the right space for your business to grow and expand is important for long-term sustained success. In order to get the best loan, you should always shop around. Get a few loan offers from several banks, and compare the terms and the fine print of the contracts. Factors to consider include: the interest rate and whether it's fixed or variable (ask whether variable rates can be adjusted and consider whether the rate will go up or down), the repayment schedule, and the total estimated repayment amount. You should also consider different types of loans like SBA loans, traditional commercial mortgages, hard money loans or bridge loans.
If you've received a loan offer, look for lender stipulations in the contract, such as whether you'll be required to have inspections, you or your spouse must personally guarantee the loan, or there will be a general lien on business assets. Know what conditions will void the loan (such as damage to the land or property, environmental or chemical disasters, or fraud). It's a good idea to have a lawyer or legal adviser review the contract for potential red flags or points that can be negotiated. Lenders generally expect some back and forth on an offer, so don't be afraid to negotiate.