Types of Commercial Loan Lenders Banks, Credit Unions, and Private Lenders Explained

Investment is the first essential step when you engage yourself with commercial real estate (CRE). It is one of the most popular investment options and also the largest asset class. Finding financing is one of the first steps to becoming an active CRE investor. Along with this, buying a commercial property is usually more expensive than a residential one and generally demands for loans.

Commercial loan lenders can sometimes be complicated, and this financing side of the industry is also a little tough to understand. If you want to get a proper understanding of the loan system and make investments, it is necessary for you to familiarize yourself with multiple CRE lenders.

Your knowledge on this should include who these lenders are, their way of lending, and the difference between their types. Some of the common CRE lenders are, insurance companies, REITs, banks, private equity funds, and pension funds. In this article, you will be able to learn about all these, which will help you in deciding which commercial loan lenders are best suited for you for investments.

Best commercial loan lenders

Below are some of the commercial loan lenders listed for you.

Banks

Large financial institutions and banks are usually the first people to look up to as commercial loan lenders. Banks are traditional lenders, and many CRE loan dollars come directly from this source in any given year.

It is not just the commercial banks that get involved in commercial lending, but there are community and regional banks as well that have become a part of these financing options. There are other options like credit unions, which have their benefits and disadvantages. There are different banks that serve commercial loan lenders as well, some of them are investment banks, foreign banks, savings and loan associations, private banks, and online/non-bank lenders. These are all the CRE lending spaces that are active in business banking.

There are multiple reasons that tell us the importance of banks. Large institutions will be able to provide you with various financial services, which means one-stop shopping for CRE professionals. Banks usually assure borrowers with stability and a reputation, which eases the worries fr potential lenders. This also means that you can take business loans from these lenders even during the times of low transaction volume, since they have extra working capital to make a few risky loans. However, there is a possibility that they will be supporting requests for large loans than others.

Since banking has positive sides, there are also some drawbacks to seeking funds. The approval process of these loan options can be slow because of complex operations and multiple requirements for approvals. They may also charge you higher fees or provide less personalized services than alternative lending sources or online banking. Banks have strict requirements when it comes to commercial loan lenders because they comprise a large portion of the bank’s total lending portfolio. Today, banks are under scrutiny from regulatory bodies for mitigating any kind of risk in their operations while releasing any loan amount.

Insurance companies

The past few years have come up with some unique needs of lending, and insurance companies have capitalized on the opportunity to set their foot in the market. Insurance companies have a steady source of income on which they require reliable returns. Commercial loan lenders have become a famous choice, which has become possible through the dependability of rent payments along with the long-term nature of these commercial leases.

Insurance companies act more like a bank when it comes to lending. They prefer lending to an experienced borrower, which is like an extra precaution to avoid any type of loss, in case the borrower is unable to repay the small business loan. Insurance companies also have the strictest business checking and underwriting standards, which require significant collateral and powerful credit.

However, since they have a steady income stream, insurance companies can provide competitive interest rates and also more flexible term loans than banks. These can be in the form of interest-only payments or prepayments.

Credit unions

Credits unions are similar to banks, with some differences. They are a member-owned, not-for-profit financial institution that usually operates in a particular region or geography. But credit unions are seen as a lender for homes and cars, and have grown in the space of CRE and have become commercial loan lenders or commercial refinance lenders in the recent years.

Credit unions also provide you with various personalized services, unlike banks, which will help those entering the world of investment for the first time. This is so because it is a not-for-profit, and offers lower interest rates than any traditional bank, resulting in significant savings throughout the loan cycle. They can also come with more flexible financing solutions in the money market. It can be anything from extended repayment periods to lower requirements for down payments.

Although credit unions can have varied requirements from banks or any government agency, and ask for membership to obtain a loan.

Government-Sponsored Enterprises (GSEs)

Government-sponsored enterprises (GSEs) support the commercial real estate (CRE) market by providing reliable lending services. There are multiple leading GSEs involved in CRE lending in the United States. These entities purchase mortgages from lenders, pool them together, and issue mortgage-backed securities to investors, which helps maintain liquidity in the mortgage market.

Because GSEs receive government funding, they often offer lower interest rates than private commercial loan lenders. Their loan products are designed to be accessible to a broad spectrum of banking service providers, making GSE loans an attractive option for many borrowers. However, GSEs follow strict underwriting guidelines and impose maximum loan limits, which can be more restrictive than those of private lenders. Additionally, GSEs operate under government oversight and regulations, which can lead to changes in their lending policies over time.

Besides GSEs, other government agencies, such as the Department of Housing and Urban Development (HUD) and the Small Business Administration (SBA), provide loan programs tailored for commercial real estate borrowers. These government-backed programs often emphasize equal housing lender principles, ensuring fair and equitable access to financing for all qualified applicants.

Hard Money Lenders

Hard money lenders usually consist of individuals or companies, as opposed to banks. They are known for providing short-term loans with high interest rate. These commercial loan lenders are targeted at distressed properties or borrowers who can’t meet the strict requirements of the traditional lenders, for example, those who have a poor credit score. This is the reason that interest rate on these commercial real estate loans are sometimes 2-3 times higher than that on a normal loan.

Hard money lending generally makes use of the property itself as collateral. This acts as a wise choice for people who are looking to flip a property or those who are looking for a bridge loan.

REITs and CMBS

Commercial, mortgage-backed real estate investment trusts (mREITs) also act as commercial loan lenders in the real estate industry. While equity REITs buy and manage property directly, mREITs invest in or originate commercial mortgages or securities backed with mortgages. They get cash with the money they lend and generally don’t directly manage or own any property.

CMBS lenders represent an essential category of commercial loan lenders. They buy commercial mortgages from various lenders, pool these loans, and issue securities backed by the mortgage pool. CMBS loans often provide borrowers with greater flexibility and can offer higher loan-to-value (LTV) ratios than other lenders. However, they tend to be less flexible regarding loan modifications and frequently include prepayment penalties.

Conclusion

Understanding the diverse landscape of commercial loan lenders is crucial for any investor entering the commercial real estate market. Each lender type, from banks and insurance companies to GSEs and hard money lenders, has distinct commercial loan requirements, interest structures, and underwriting standards.

Your choice of lender should align with your financial profile, investment goals, and desired level of flexibility. While some lenders offer competitive rates and long-term support, others may prioritize speed over credit approval processes. Evaluating your property’s cash flow and financial readiness will help you select the right financing partner and navigate CRE investment with greater confidence and success.

FAQs about commercial loan lenders

What are the types of commercial loans?

There are secured or unsecured loans and loans for short or long-term maturities. These loans include term business loans, individual loans for business purposes, agricultural credits, and working capital advances. Working capital or seasonal loans offer temporary capital over everyday requirements.

What are 3 differences between commercial banks and credit unions?

Credit unions are nonprofit, membership-based institutions offering lower rates and fees, making them attractive commercial loan lenders. Banks, being for-profit, provide greater access to branches and ATMs but may lack personalized service. While banks suit larger financing needs, credit unions are ideal for borrowers seeking better terms despite their limited accessibility and membership requirements. Both serve different needs in commercial lending.

What are the four types of private lenders?

There are several types of private lenders in commercial real estate industry. These private lenders are: a family office, a private individual, a hedge fund, a private equity fund or firm, and lastly a self-funded specialty finance company.

What is the difference between a bank loan and a commercial loan?

Commercial loans are typically designed for large corporations to finance major projects such as real estate development or equipment purchases. In contrast, business loans support small to mid-sized companies with everyday operational expenses. Commercial loan lenders usually offer longer repayment periods and lower interest rates on commercial loans, as these larger ventures are seen as lower-risk investments due to their scale and financial backing.

Why use a credit union instead of a bank?

Credit unions are known for offering lower closing costs on home mortgage loans and more competitive interest rates, especially on credit cards and auto loans. They also tend to charge fewer fees and provide higher returns on savings products like CDs and money market accounts. As commercial loan lenders, credit unions often deliver more favorable terms for borrowers seeking affordable, flexible financing options.

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