Traditional loan programs offer variable and fixed interest rates for both purchase and refinance transactions. Most have prepayment penalties that are a percentage of the remaining loan balance. The percentage typically is constant for or declines during the period when the loan's rate is fixed. Best rates are available for properties in urban areas with debt service coverage of at least 1.20.

Conduit loans are pooled and sold to investors in the CMBS markets. A financial intermediary, the conduit, underwrites and documents the loans using standardized terms to manage the risk for the investors. As a result, conduits generally require higher quality properties and borrowers. The borrowers generally must have previous investment experience with the property type. Because of the controlled risk, conduit loans typically have lower rates.

Some lenders allow a borrower to combine a first and second lien to achieve higher leverage. The second lien may be a mezzanine loan offered by the lender or may be carried by the property seller. Since the second lien is against the same property, the property's cash flow must be sufficient to service the debt for both loans. The maximum LTV for the first lien is typically between 70% and 80%.

If the seller will not carry a second lien, it still is possible to achieve high leverage financing from a high leverage lender. Up to 90% financing is possible on many property types for borrowers with good credit. The property must generate good cash flow because it has to be sufficient to service the higher debt. The biggest drawback to high leverage loan programs is they carry much higher interest rates than traditional programs.

Similar to the Second Lien Program, the 100% Program usually requires a mezzanine loan or the cooperation of the property seller. The borrower combines the first and second liens with an unrelated loan for the remainder of the purchase price. The unrelated loan may be a signature loan, a loan against another asset (e.g., stocks), or some other loan that doesn't encumber the property. A limited number of lenders allow this type of financing, and only borrowers with financial strength will qualify. The borrower's financial statement must demonstrate the ability to service all the loans.

Most commercial loan programs penalize the borrower for paying off a loan early. A small number of lenders offer programs with no prepayment penalties and with competitive interest rates. These programs typically have lower maximum loan-to-value ratios and shorter terms. The loan may balloon in as little as 5 years.

Stated property income loans are designed for properties that currently do not cash flow for reasons the borrower intends to correct, such as higher-than-market expenses or vacancies. Instead of providing operating statements to document income, the borrower states the net operating income of the property. The lender verifies the income potential through a property appraisal. As such, the borrower's personal financial strength is more important than with other commercial loan programs. High leverage and seller second liens are permitted.

Stated borrower income loans are designed for borrowers that cannot provide personal income documentation such as tax returns and employment verifications. They satisfy a niche in commercial lending on smaller commercial properties for which personal guarantees are important. The lender underwrites the property based entirely on its historical cash flow and appraised value. High leverage and seller second liens are permitted.

Rehab property loans, sometimes called bridge loans, are designed for the purchase of properties requiring rehabilitation. This includes properties with deferred maintenance or high vacancy rates and properties that have been poorly managed. These loans typically are short-term, three years or less. The lender expects the buyer to refinance the rehab loan once the buyer corrects the problems. Rehab loans with longer terms are available through programs offered by the government. These government programs offer very high leverage, but they require strong and experienced borrowers. The minimum loan amount typically is $2 million, and closings are expensive and lengthy.

Hard money loans are short-term loans designed for properties that do not cash flow and situations requiring quick closings. Hard money lenders are collateral-driven, meaning they are interested only in the quick-sale value of the property. Lenders typically don't even consider the property's cash flow or the borrower's financial strength. Often, hard money lenders will accept a recently completed appraisal or some other estimate of property value in order to close the transaction quickly. The tradeoffs are much higher interest rates, higher loan fees, and lower maximum LTV.