7 Small Business Loan Options for Real Estate Investment [1 Bonus]

Video how to get a business loan to buy real estate

Real estate is an excellent investment because it appreciates over time, has tax breaks, and can give you passive income as you grow your portfolio. Real estate is attractive to investors because its income won’t fluctuate with the stock market or interest rates on other investments. In addition, losing money in real estate is more difficult than any other type of investment.

Financing real estate investments is a great challenge for small businesses. You must have the right credit history and prove that you can repay the loan. However, it is possible to finance your real estate project with a small business loan. You must determine how much money you need, how long you plan to borrow, and how much interest you can afford. From there, you can narrow down the loan options with varying interest rates and fees.

Many different types of loans are available for real estate investors, such as business loans, loans for debt consolidation, and refinancing loans. Your choice of where to acquire a small business loan for real estate depends on your unique situation and goals. The determining factors include your budget, the property you want, and whether or not you can get a mortgage.

Small Business Loans for Real Estate Investors

A small business loan is a short-term loan that helps fund your business operations. These loans can range in size from $10,000 to $500,000 and are paid back over months or years with interest-only payments during those periods. Business loans must be repaid within a year, or they are considered delinquent, and you will be charged high-interest rates after that point.

Before looking for financing for your real estate project, you must determine the budget for the investment. You can use experts like building contractors or online tools to assess the financial needs of the investment accurately.

It’s best to explore various methods of obtaining a small business loan for real estate.

1. Small Business Loans for Debt Consolidation

A business consolidation loan is one of the most common small business loans. Debt consolidation for businesses allows you to combine multiple debts into one loan at a lower interest rate than you would get on other types of loans. Your business funding company will likely offer flexible debt consolidation with minimal requirements.

If you’re interested in applying for a business consolidation loan, then consider working with an accredited lender specializing in businesses like yours. Loans for debt consolidation from business funding companies offer competitive interest rates, flexible repayment options, and several financial products. These lenders also have partnerships with dozens of other companies to help support your business.

To qualify for a small business debt consolidation loan for your real estate business, you need to have been operational for over three months, have a good credit score of over 530, and have minimum monthly revenues of over $10,000.

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If you’re looking for debt consolidation loans for businesses, consider these factors:

  • Your credit score and the quality of your collateral (property)
  • Your cash flow needs and expected growth
  • The amount of money you want to borrow
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2. Business Loan Refinancing

Business loan refinancing is an excellent option for business owners who need to borrow more money. This loan is typically used to pay off existing debt obligations but can also fund new projects. Business loan refinancing is often a good choice when your business has been operating for a while, but you may have some high-interest loans that you need help to finance.

This model is ideal if you want to pay lower interest rates or repayment amounts. Refinancing these debts can reduce your interest rates and avoid additional fees associated with these loans. This option is also helpful if you have a large amount of outstanding debt and want to get your business back on track.

3. DSCR Loans

The Debt Service Coverage Ratio (DSCR) is used to evaluate an entity’s ability to meet its debt obligations. When analyzing corporate finance, the primary focus is usually on companies or corporations. However, when dealing with multifamily and commercial real estate investments, DSCR can be utilized as a method for measuring the cash flow of income-producing properties.

When considering the borrower’s potential to cover debt payments, Debt Service Coverage Ratio (DSCR) is a key measure. DSCR measures how much Net Operating Income (NOI) generated from an asset can be used to repay annual debts; in other words, it is the ratio of NOI relative to total loan payment per year. A higher DSCR indicates more net operating income available for debt repayment and is thus preferred by lenders.

Knowing if a real estate property is generating enough revenue to cover the mortgage payments is essential, and DSCR provides this insight. Whenever an investor applies for a new loan or refinances their existing loan, lenders often use the debt service coverage ratio as one of the metrics to determine how much money they can lend out! As such, having access to accurate DSCR figures has become increasingly important.

Check your eligibility for a DSCR loan.

4. SBA Loans

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The U.S. Small Business Administration (SBA) offers loans, grants, and other financial assistance to small businesses through its lender partners, who are also SBA-approved. You’ll need to provide financial information, including your business plan and other personal information like your credit score and a copy of your driver’s license or passport. The SBA’s website lists numerous resources for small businesses seeking financial aid.

The SBA provides small business loans to entrepreneurs and high-growth businesses with special funding requirements. The loan amount is based on your business’s size, and the loan terms are up to 25 years with a fixed interest rate.

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The Small Business Administration (SBA) has several programs that offer loans for real estate development, renovation, and construction. You may use these loans to purchase commercial space, build a new building, or renovate an existing property.

The SBA also offers low-interest commercial real estate loans and 504 loans for small businesses that have experienced an economic downturn. These programs are designed to fund small businesses that need to expand their operations or upgrade their facilities.

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5. Venture Debt Financing

If you can’t find an angel investor or cannot secure investment capital from friends and family, then consider taking out venture debt financing for your business by using a bank loan as collateral. Venture debt financing is available from many lenders and typically doesn’t require personal guarantees from borrowers.

Venture debt financing is a flexible option for obtaining a small business loan for real estate. This type of loan offers higher interest rates and fees than traditional bank loans. However, venture debt does not have the same flexibility as convertible debt, and you must pay it back within a certain period.

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6. Convertible Debt from Angel Investors

When starting a business, you must have enough capital to get you through the initial stages of operations. An excellent option is finding angel investors willing to provide you with much-needed cash.

The best way to start with angel investors is to create a business plan and pitch it to them. The plan should include a detailed overview of your business, how much money you need, how long it will take to build it up, and more.

The more detailed your business plan is, the more likely investors will agree to invest in your company. Find someone who knows about real estate investing and ask them for advice on structuring your company, so it’s eligible for investment. Once you have the backing of an angel investor, you must figure out how much money they’re willing to put into your company.

Angel investors can provide loans in exchange for equity in your business. The debt is convertible, which means you can convert it into equity at a certain point in the future. This type of financing is typically used by startups or other companies seeking to expand beyond their current funding level.

7. Bank Loans

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Bank loans are also a viable option for obtaining a small business loan for real estate. Banks often offer loans with lower interest rates than other types of financing because they want to attract customers who cannot qualify for other types of loans, such as credit cards or home equity lines of credit (HELOCs).

A bank is your best option if you have excellent credit and collateral, such as real estate or other assets. Banks offer a variety of loans to small businesses that want to expand their operations or purchase real estate. Small business bank loans typically range from $5,000 to $50,000. Your loan amount may vary depending on your credit rating and income.

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Commercial banks typically require collateral such as property deeds, liens, and mortgage notes to qualify for a loan through them. They also require credit scores from borrowers before they approve any application for a loan.

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Bonus: Hard Money Business Loans

Hard money loans are a type of unsecured personal loan for real estate. They are also high-yield, with no down payment or private money loans. Investors and lenders use these types of loans to make large construction purchases, such as buying a commercial or residential building, buying the land to build on, or purchasing land and buildings in foreclosure.

Hard money loans are the most expensive way to get a small business loan. Hard money lenders can offer larger amounts than banks, with interest rates ranging from 12% to 18%. Hard money loans are typically obtained from private investors who specialize in securing financing for real estate investments and projects.

To qualify for hard money loans, you must show that you have sufficient assets or equity in your business. If you do not qualify for hard money loans but still want to finance, other options are available such as small business bank loans, loans for debt consolidation, and SBA loans.

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Final Thoughts

There are many options available if you are in the real estate industry and looking for a small business loan. Whether you’re refinancing your mortgage or looking for a new loan to finance your next real estate investment, several different types of loans can help you achieve your goals. The type of lender you choose will depend on the funding you need, your credit history, and your financial situation.

While many small businesses rely on venture capital firms or angel investors to fund their start-up costs, real estate loans are available through banks, credit unions, and private investors.

You can use the small business loan for various purposes, including loans for debt consolidation, refinancing existing debt, or funding property improvements. You can get these loans from the SBA, business funding companies, local banks, credit unions, and online lenders. Each lender has its requirements for eligibility and interest rates for small business loans.

To successfully obtain a small business loan for real estate, you must have a solid business plan. This plan should include details on how you will use the money, the return you will get on your investment, and how long it will take to pay off. When picking the way to finance your real estate investment, consider customer support, ease of application, flexibility, eligibility, loan costs, and accessibility.