Small-Balance Commercial Real Estate Loans and Their Types

The small balance commercial realty loan—an overview


A small balance realty loan is a real estate asset–based business model in which the capital equity’s amount/size (which is needed to do an average deal) is way lesser than USD 2,000,000. However, there is no specific bracket on the amount of capital equity required to qualify for being a small balance commercial real estate loan.


The bifurcation of small balance commercial real estate loans


The field of small balance commercial real estate loans can be easily divided into two varieties. In this section, we are just explaining you, the reader-becomeing-investor, about these two types. So let us get started.


Consider an example—a mom-and-pop store will largely make a beeline for small balance realty finance that is ranging from USD 100,000 to USD 400,000. Such businesses—mining, agriculture, hotels, and restaurants—are basically the labor intensive ones that do not have heavy capital requirements. Sometimes, the loan amount will be below USD 100,000—and that is referred to as a tiny requirement according to many institutional standards.


In contrast, all the capital intensive industries—telecommunication, transportation (railways and airlines), oil production & refining, and financial institutions—need small balance commercial realty loans that range from USD 500,000 to USD 10,000,000. However, this specific variety of small balance commercial real estate loans has a strong growth track (especially when such financial products are coupled with conduit-type loans that are the lifeline of commercial or institutional mortgage-backed security market).


There have been research works, too


According to a research work done by a leading research firm, Boxwood Means, the volume of small-commercial realty transactions started rising from mid-2015; and this transactional volume of 2015 was way ahead of what happened in 2014. This study shows that the trend of investing in small balance commercial realty loans, offered by different commercial mortgage lenders, will gain ground in the coming time.


So that is it for now on small business commercial real estate loans, readers. For more of such insightful pieces, keep coming back to this space and know a thing or two about different commercial real estate financing options that investors have today.