Small Balance Commercial Lending: Your Next Opportunity

It’s no secret that commercial real estate investments can be much more lucrative than residential ones. But what if you’re new to investing or have only landed residential deals so far? That’s where small balance commercial lending comes in. 

Real estate investors rely on small balance commercial lending to buy money-making assets like multi-family and mixed-use properties. And now is a great time to do so. Since 2020 Q2, multi-family investors have rented out an additional 1.06 million units and raised rent by 11% year over year. 

Table of Contents:

What Is a Small Balance Commercial Loan?

A small balance commercial loan is a long-term loan of $250,000 to $5,000,000 that you take out for a commercial property.

Unlike their high-balance counterparts, small balance commercial loans have a faster underwriting process, more relaxed requirements, and more flexible packages. This makes it easier to find financing solutions for commercial properties.

Interest rates can vary based on loan amounts, term length, business credit scores, property types, and after-repaired value (ARV).

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Commercial Real Estate Loan Requirements

Your loan’s variable or fixed rates will depend on your qualifications. Although commercial lenders have different requirements, most will expect:

  • A debt service coverage ratio of at least 1.25
  • Loan-to-value (LTV) ratio of 75% to 80%
  • Minimum 20 — 25% down payment (SBA loans start at 10%)
  • At least two years in business under current ownership
  • Minimum $250,000 in annual business revenue (if applicable)

Types of Small Balance Commercial Lending

Many investors turn to small balance commercial lending to purchase or renovate an investment property. Small businesses may buy a building that they use as well as rent out to other companies.

The table below isn’t an exhaustive list, but it shows the primary ways real estate investors use small balance commercial loans.

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Commercial Loans for Apartment Buildings

  • For apartment complexes with five or more units.

Industrial Property Loan

  • For warehouses and light industrial properties.

Office Building Mortgage

  • For owner-occupied or rented office spaces.

Retail Property Loans

  • For shopping centers, malls, outlets, and convenience stores.

Key Takeaways

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Daniel William

Co-Foundet Acme Corp

What Is the Minimum Credit Score for a Commercial Loan?

Commercial real estate loans typically require a personal credit score of at least 660. Often, lenders will also look at your business credit score, which can range from zero to 100. Most small business loans require a minimum business credit score of 75.

Small balance commercial lending could be your next step toward a profitable real estate investment. And with Revolution Realty Capital, you can land bigger and better deals on multi-family and mixed-use properties. 

Apply now and let’s talk about your next deal.

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