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Business Loans for Investment Properties

The term "commercial loan" is rather vague. Though often associated with a large commercial purchase, such as an office building, it could also mean a land purchase or even equipment financing.  Let's take a closer look at the types of commercial real estate loans as well as types of properties.

 
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Types of Commercial Property

The commercial property examples outlined below would be financed by an SBC Loan.

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multi-family

Multi-family

5 or more residential rental units

5 or more residential rental units

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mixed-use

Mixed-Use

Mix between commercial and residential units.

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flex space

Flex Space

typically a warehouse with a small office component.

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Office

Office

Multiple tenants are required by most SBC lenders.

 
 
 

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Light Industrial

Light Industrial

multiple tenants are required by most SBC lenders

 
 
 

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Retail

Retail

Most lenders will shy away from single tenant buildings due to the risk associated with the loss of the tenant (of course this excludes the situation with a credit tenant triple net lease).

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Comparing Residential Loans for Rental Properties and Commercial Mortgages

At its core, an SFR loan is an investor loan secured by a residential asset. Similarly, an SBC loan is an investment property loan secured by a commercial asset. Let's take a look at some other similarities and differences.

 

Underwriting Process for Commercial Real Estate Financing vs. Residential Mortgage Financing for Investment Properties

Private lenders typically look primarily at the cash flow for both residential and commercial mortgages. While good credit is highly important, the key factor is having a Debt-Service Coverage Ratio (DSCR) that demonstrates the borrower's ability to repay the loan. Commercial real estate loans simply have more complexity than residential mortgages. For example, for commercial properties the underwriter will be looking at several leases, instead of one. It is very hard to gauge the financial track record of commercial tenants, so lenders will review the lease history instead.


When working with traditional lenders instead of private lenders, commercial real estate loans become even more nuanced. Banks require far higher reserves and far more documentation.

 

Loan Documents Needed for Commercial Real Estate Loans vs. SFR Rental Loans

Both types of properties require basic loan documents including a personal guaranty, lease documentation, and entity documents. A commercial loan will require further documentation, depending on the type of property. Examples include tenant estoppels, non-disturbance agreements, or lock box agreements.

 

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A Look at Visio Lending's Commercial Loans for Residential Investment Properties

Visio Lending enables small-to-medium investors to grow their portfolios of rental properties, including vacation rentals. Our DSCR Loans are underwritten using property level cash flow, rather than personal income. We're proud to offer:

  • Long-term financing with full 30-year terms and no balloon payment

  • The ability to protect your personal assets and finance in an LLC

  • Prepayment fee and interest rate buy downs

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