• Business loans for rental property can help you get capital to solve cash flow issues or pay for expenses.
• Real estate investors can look into bank loans, term loans, a business line of credit, bridge loans, hard money loans, and blanket mortgages.
• Eligibility requirements, underwriting criteria, and funding timelines vary widely among these options.

6 Types of Business Loans for Your Rental Property

As a real estate investor, you know how exciting it is to earn rental income on multiple properties. You also probably know how stressful it can be when there’s tenant turnover or much-needed repairs or renovations to increase the value of your property. Business owners in the real estate investing space who need capital have several financing options. Here, we break down the different business loans for rental property that can help you make the most of your investment.

Types of Business Loans for Rental Property

There are various business loans for rental property on the market. It’s about finding the right choice for your specific needs and timelines. Note that this is different from commercial investment property loans, or commercial real estate (CRE) loans, which are exclusively for commercial properties.

1. Bank Loans

Business loans for investment property are available from major banks, credit unions, and other financial institutions. So, if you have your business banking needs taken care of with a particular financial institution, you can ask about their options for business loans for a rental property. The major benefit here is that you have an existing relationship with the bank.

The downside is that many banks and other financial institutions have strict eligibility requirements. Lending institutions don’t like making risky investments. To prove you’re a viable candidate, you’ll need to meet credit score requirements and annual revenue thresholds. Additionally, banks may have a longer timeline from application to funding, so keep that in mind if you need loans for your rental property business .

2. Term Loans

If you need a significant amount of capital upfront, term loans may be able to help by providing a lump sum. Loan amounts vary by lending institution but could range from thousands of dollars up to a million dollars or more.

Typically, term loans come with fixed interest rates . But that may not always be the case, so it’s important to check with your lender. When it’s time to pay back the loan, the repayment schedule is on a specific term. If the loan has a fixed rate, then you can repay the loan in predictable monthly payments. This can make term loans appealing because they can make it easier to budget and manage your overall cash flow.

While you can get term loans at banks and financial institutions, online lenders typically have a faster funding timeline. So, if you need funds quickly to renovate a property or jump on an opportunity, online lenders may be a better fit.

3. Business Line of Credit

If you don’t quite need a fixed amount, a flexible financing option to consider is a business line of credit. While this isn’t a traditional loan, this form of financing is akin to a credit card in that it provides revolving credit . You’re approved for a line of credit up to a certain amount and can use the funds as you please. You only pay interest on the credit you use. As you repay the line of credit, you can reset the available amount you can borrow.

Real estate entrepreneurs can look into either an unsecured business line of credit or secured business line of credit. An unsecured business line of credit means there is no collateral backing the amount you borrow. A secured business line of credit has a form of collateral, such as real estate .

You can typically enjoy lower interest rates when you opt for a secured business line of credit, but you can put your collateral on the line if you face financial hardship later and can’t make payments. Lenders can go after your collateral based on the terms of the loan.

4. Bridge Loans

Real estate investing requires you to manage different moving parts to make it all come together. At some point, you might be trying to sell a property and buy another one at the same time. If you’re facing a temporary budget shortfall, bridge loans can come to the rescue.

Bridge loans, as the name suggests, bridge the gap in funding while you wait for permanent financing options to kick in. Lending approval and funding times may drag on, but that doesn’t change the fact you need capital right now. That’s where bridge loans can help.

Given that this type of loan fills a momentary gap, it comes with a short term.

5. Hard Money Loans

Real estate investors who need quick funding can consider hard money loans as an option. Hard money loans typically go to help renovate a property, making it an ideal fit if you’re looking to quickly flip a home. What makes this funding source unique is that your eligibility is less about your credit history and more about the property’s value. In fact, the property typically serves as collateral for hard money loans.

This type of financing is short-term and, in the eyes of lenders, tends to be riskier than other loans. Due to that, hard money loans typically have higher interest rates. On one hand, you might not need the best credit to qualify for hard money loans. On the other hand, you could pay more interest due to the elevated rates.

6. Blanket Mortgages

If you have your eye on multiple properties, an innovative financing option that can help is a blanket mortgage. Instead of having multiple home loans for each property you want to acquire, you can take on a blanket mortgage to fund the purchase of all of them under one umbrella. Be aware the homes you buy with a blanket mortgage typically act as collateral to back the loan.

Qualifying for Loans for Rental Property Business

It can be tougher to qualify for a business loan for a rental property compared to qualifying for mortgage loans for a primary residence. Managing mortgage payments for yourself is much different than managing various business loans for rental property investments. While a real estate investment may turn a profit, there is still an element of risk with its unpredictability.

Tenants come and go. Rental properties will eventually require renovations. You may outsource work to a property management company, which comes at a cost.

These additional risk factors mean that as a borrower, you’ll need to have a higher credit score to be eligible for business loans for a rental property. In general, you might need a credit score of 620 . However, each lender has different minimum credit score requirements. It is very possible lenders require a higher credit score.

Having a higher credit score typically helps you unlock lower interest rates. But with a rental property loan, expect higher interest rates than traditional mortgage loans. Again, the added layers of risk result in steeper rates from lenders.

How to Get Business Loans for Your Rental Property

1. Review types of business loans for rental property: Identify your needs and how they match up with the different types of business loans for a rental property. Look at the eligibility requirements, flexibility, loan amounts, repayment terms, and interest rates.
2. Research lenders: After deciding on the type of financing you want, research several lenders in the space that offer the particular loan product you’re looking for. See if you qualify based on your credit history and other financial requirements.
3. Prepare documentation: To qualify for business loans for your rental property, your lender will ask for supporting documentation. This helps them determine if you’re in a solid financial position to take on a loan and the monthly payments that come with it. You might need to prepare your tax returns, bank statements, financial statements, business plan, profit and loss statements, and more.
4. Submit application: Go to the lender’s website or, if you prefer, the bank’s local branch to start the application process. There, you can submit your application for business loans for a rental property. Fill out the information carefully and provide all required documentation to avoid potential delays.
5. Collect funds: If your loan application is approved by the lender, you can collect the funds to invest in your rental property. Funding timelines vary by type of lender and financial institution. Banks and credit unions typically have longer loan processing times, which can affect how quickly you receive funds. Online lenders may be able to get you the funds faster.
6. Repay the loan: To build up your business credit history and remain in good standing, make your loan payments on time. Maintaining good credit can help you qualify for business financing in the future. As a benefit, you may be eligible for lower interest rates with a strong credit history.

Final Thoughts

Whether you’re just starting out with a rental business or managing multiple properties successfully, your cash reserves may be stretched thin. If you want to grow your business or boost the property value with renovations, you can look into different loan options.

Getting business loans for a rental property can get you the capital you need to invest and continue to build your real estate portfolio.

FAQs about Business Loans for Rental Property

If you’re considering getting loans for a rental property, learn more with these FAQs.

What Are Commercial Investment Property Loans?

Commercial real estate loans allow borrowers to construct, purchase, or renovate a commercial property.

Can I Put Less Than 20% Down on an Investment Property?

Real estate investors generally need to put 20% down for an investment property. However, you may be able to look into other financing options that allow you to put down less if you have excellent credit.

What Business Loans for Rental Property Are Available?

If you need business loans for rental property, there are a range of options to consider. These can include hard money loans, term loans, bridge loans, and more.

How Do You Qualify for Business Loans for Rental Property?

If you want to qualify for business loans for rental property, you must meet the specific lender’s eligibility requirements and underwriting criteria. Many lenders require a minimum credit score, a down payment, and a debt-to-income ratio that meets their guidelines.

Can You Use SBA Business Loans for a Rental Property?

The Small Business Administration (SBA) offers different loans that may be used for real estate or refinancing. The SBA 504 loan can buy existing buildings or land , while the SBA 7(a) loan can be used for refinancing or improving the real estate you have . SBA loans are available for commercial properties but not for real estate investors with rental property.

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