Investing in commercial real estate usually requires financing, which is difficult when you have a poor credit score. However, having bad credit doesn’t necessarily restrict your ability to invest in real estate. Even though it can be stressful, you still have options to pursue. Here’s how commercial property loans for borrowers with bad credit can happen.
Types of Commercial Property Loans That You Can Get with Poor Credit
While trying to secure commercial property loans with bad credit, you’ll probably either face higher costs or shorter terms. However, some loans may be beneficial for you from both cost and time perspectives. Here’s a breakdown of the different types of financing to investigate if you have a low credit score:
- Traditional bank financing
Bank loans are typically what investors turn to for financing real estate deals. A traditional bank, though, has strict policies on credit scores and will reject applications that don’t meet requirements. If you do get the loan, you’ll likely pay a higher interest rate than from a niche lender. A key benefit to traditional loans is they’re easy to get if you have a good credit score.
Taking steps that raise your credit score will give you wider financial options to consider. The best way to improve your credit score is to work toward paying off debts by a certain time to reach a goal. Some people choose debt consolidation to get back to good credit, but it can also make your financial situation worse. Building a savings account, creating an emergency fund, and planning a tight budget will put you in a better position to seek a traditional loan.
- CMBS loans
Commercial mortgage-backed securities (CMBS) loans are offered by banks to investors. The terms for these loans sold on the secondary market tend to be 5-10 years. CMBS lenders secure bonds based on pooling different commercial real estate mortgages together. The firm sells bonds to investors, who are paid back by the borrowers. These loans are usually more flexible, with lower interest rates than what traditional banks offer.
- Hard money loans
While conventional bank loans are backed by credit scores, hard money loans are backed by collateral. That means risking an asset until you repay the loan. Hard money loans are usually easier to get with a greater degree of flexibility than traditional loans. Lenders of such loans may be flexible with fees, terms, and restructuring opportunities.
- Private money loans
Another avenue for funding if you have bad credit is to seek a private money loan. Private lenders aren’t bound by as many regulations, so there’s less red tape involved. They share similarities with hard money lenders, except private lenders are less likely to issue penalties for late payments. The main disadvantage to a private money loan is that it usually means you pay a large down payment and a high-interest rate.
Overcome the Challenges of Bad Credit with Fidelity Mortgage
Even though bad credit can be a hurdle to securing commercial property loans for borrowers with bad credit, it’s still possible to get a cash advance from the sources listed here. You need to weigh the pros and cons before you sign up for any loan. At Fidelity Mortgage Lenders, we can provide you with commercial real estate loans without good credit. Apply now for a loan to get started!