The Difference Between Traditional and Alternative Commercial Real Estate Financing

Compare two popular ways to receive commercial real estate financing: traditional lenders and alternative sources of funding. Commercial property requires a significant financial investment, so it’s important to find the best financing option for your particular situation. Learn more about the pros and cons of alternative and traditional lenders to get more out of your financing.

A traditional real estate option offers you low mortgage rates. When you choose a mortgage through a bank, you can enjoy long-term payment plans. Similar to your residential mortgage, choose a commercial mortgage with a repayment plan of 20 years or more. Low-interest rates prevent you from paying excessive amounts of interest as you spread out your repayment plan and enjoy additional working capital to invest in other property or to operate your business.

Of course, a traditional lender comes with strict requirements. In order to take advantage of these great rates and terms, you’ll need to have excellent credit and financial history. A bank typically requires a large down payment with inflexible terms. You’ll need to have your property appraised by the bank, and any unusual real estate or property that requires work will need to be completed before mortgage approval. Many banks also charge prepayment fees, so you have to stay with your long-term mortgage.

In contrast, alternative lending options offer flexibility in your commercial real estate investment. Enjoy a mortgage with more reasonable limitations and flexibility. Some private lending options allow you to borrow cash for your real estate. This is a competitive option if you’re looking for a commercial property that would otherwise be unavailable with a traditional mortgage. Purchase property, invest in repairs and renovations to improve the value of your real estate. Few private lenders require the same strict credit score, down payment and other features of a private lender.

Flexible mortgages come at a price. Most alternative lending options come with higher interest rates and shorter loan terms. Because alternative loans are often targeting investors and business owners who are unable to become approved for a traditional mortgage, you can expect to pay more for the opportunity to receive a mortgage.

Compare your commercial real estate financing options today to determine the best course for your investment. Whether you’re looking for an investment property to lease to business owners or an owner-occupied real estate option, choose either a traditional or alternative lending option to secure your real estate and invest wisely.

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