If you are starting to work in your local real estate markets in any capacity, understanding the common types of financing used in property development and resale is important. It doesn’t matter if you are looking to work as a sales agent, investing, or wholesaling to investors. Knowing how each type of player in the local market operates and what their financing model looks like allows you to participate more intelligently. For investors looking to become developers in the long term, it’s even more essential because you will probably use every one of these commercial real estate loans in time.

1. Bridge Loan Financing

Short-term loans that close quickly for terms under three years are typically lumped together as bridge loans even if their other traits are very different. That is because this loan type is about the function of the product, and that function is to bridge the gap between capital on hand and anticipated income. Most bridge loans have rates around or above 10 percent, interest-only payments, and a lump sum payoff at the end. This structure makes them ideal for rehab and refinance strategy or for flippers.

2. Commercial Mortgages/Traditional Financing

The most common form of long-term financing is a term loan with fixed interest rates and amortizing payments. It’s often called a commercial real estate mortgage because of its similarity to the residential model, but the terms usually top out at 20 years. LTVs are also lower on commercial properties because they are usually perceived as bigger financial risks than personal dwellings.

3. Construction Loans

If you are developing an empty lot or performing a teardown and rebuild from scratch operation on a property, construction loans are built to help. Instead of financing the present equity, they set milestone evaluations that track your progress. That way, as value is built into the lot, you gain access to the equity from the advancing construction to finance the next phase of your plan. This makes them ideal for large-scale developments as well as single-building projects.

4. SBA Loans for Property or Asset Acquisition

Small businesses interested in term loans often find that they do not qualify under traditional bank programs because of income requirements or other criteria that have little to do with whether there is income present to support the loan payment. SBA loans are designed to get around this by mitigating the bank’s perceived risks. They are partially guaranteed and they have sizable down payments to help keep interest rates low, but they do require buyers to occupy the facilities instead of using them as investment properties. That makes them unique among the major types of commercial real estate loans in today’s market.