Mixed-use loans are used to finance a piece of real estate that has a combination of uses or zonings, such as a property with a mix of residential, commercial, agricultural, or industrial uses. They can primarily be categorized as commercial, government-backed, or short-term and may have repayment terms as short as several months to as long as 30 years.
Examples of properties eligible for mixed-use financing
Mixed-use loans require a property to have a variety of uses. This can take the form of a
- Multi-story property with retail stores on the first floor, office spaces on the second floor, and residential living units on other floors.
- Single-story building with a combination of different uses in different sections of the property.
Property eligibility is typically confirmed by a licensed appraiser. While appraising property can be a complex process, it typically involves an evaluation of the piece of real estate based on its legal zoning and its highest and best use.
In other words, the appraiser will utilize market data and comparable properties to determine how similar buyers or investors would be likely to use the property. If their findings deem that the property is best utilized for a combination of purposes, there is a high likelihood that a lender will find it eligible for mixed-use financing.
How mixed-use loans work
Mixed-use loans are typically used by investors to purchase real estate property. They are primarily secured by the property being acquired, in which the lender may require an appraisal inspection to ensure that the value and condition are acceptable and align with the terms of the loan. Depending on the specific property characteristics, you may also need to have other inspections completed, such as environmental reports and land surveys.
These inspections are important for a lender to accurately assess the risk involved with issuing a loan; knowing a property’s value, for instance, can help prevent a lender from lending more than what it’s worth. In the event of a loan default and foreclosure of the property, this can help a lender limit or recoup its financial losses. Similarly, this can help ensure there are no health or safety hazards that might lead to liability concerns or resale issues.
Who should consider a mixed-use loan
There are common trends when it comes to the type of business or borrower that will find this type of loan suitable.
- Investors & landlords: Business owners looking to generate revenue from a property commonly seek mixed-use financing. This can include landlords, fix-and-flip investors, and investors looking to conduct repairs and retain long-term ownership.
- Borrowers turned down for other loans due to property characteristics: Other loan options that can finance a mixed-use property exist. This can include hard money loans, commercial loans, bridge loans, and funding from private money lenders.
However, qualification requirements can vary greatly. So, if you’re turned down for financing elsewhere, you may need a mixed-use loan, which can have more flexibility when it comes to property eligibility.
Types of mixed-use loans & where to get them
A mixed-use loan can be classified as commercial, short-term, or government-backed. Depending on the lender you choose, there are varying features, rates, and qualification requirements tied to each type.
Loan Type | Commercial | Short-term | Government-backed |
|---|---|---|---|
Typical interest rate | 6% to 9% | 7% to 20% | 6% to 16.5% |
Typical down payment | 25% | 10% | 10% |
Typical repayment term | 30 years | 6 to 36 months | 25 years |
Typical max. loan amount | $25 million+ | $50 million+ | $16.5 million |
Typical funding speed | 30 to 45 days | 10 to 30 days | 45 to 90+ days |
Difficulty of qualifications | Moderate | Easier | More difficult |
Various loan providers can help facilitate a mixed-use loan, depending on your investment needs. You’ll want to work with experienced lenders offering flexible terms, rates that fit your budget, and loan amounts that can support the purchase of your real estate investment. Here are my recommendations:
Loan Type | Maximum Loan Amount | Disbursement Timeline | ||
|---|---|---|---|---|
 | Commercial Loans | $10 million | 7 to 12% | 10 to 30 days |
 | Short-term | $3 million | 9.99%+ | 14 to 30+ days |
 | Government-backed | $5 million | 11.5% to 16.5% | 30 to 90 days |
Commercial mixed-use loans
Who should consider a commercial mixed-use loan
It is an ideal option if the property you’re acquiring has commercial use. This may be a building with office space, restaurants, or retail stores that also have residential units consisting of apartments or other living spaces.
It may be the right fit for you if you are:
- A real estate investor looking to get rental income from both commercial and residential tenants.
- A business owner needing a larger office space but also wanting to have rental income from other tenants.
- Looking to build or construct a new mixed-use development.
- Wanting to simplify and diversify your streams of rental income among multiple types of tenants.
- In an area where a mixed-use property is in high demand, making it an attractive real estate investment opportunity.
- Not planning on residing in the acquired property.
I recommend considering Lima One Capital for a short-term loan. It offers competitive rates and funding for up to $10 million. It can also offer different types of payment options, such as interest-only, fully amortized, and non-recourse lending options.
Short-term mixed-use loans
Who should consider a short-term mixed-use loan
A short-term mixed-use property loan is useful for borrowers who partake in fix-and-flip investments, as the project can be completed and sold within a short period. That said, it is typically easier to qualify for than other CRE loans — but it generally has higher rates and fees than other financing options. Common sources of short-term financing can include commercial bridge loans and hard money loans.
It may be an option for your investment if you:
- Are an experienced fix-and-flip business.
- Plan on replacing or paying off the loan in under three years.
- Are unable to get financing elsewhere due to bad credit or limited resources.
- Have a property you are trying to finance that is in need of repairs.
- Need to get funding quickly.
For a short-term loan, I recommend considering RCN Capital. It provides bridge loans with rates starting at 9.99% and payment terms of 12 or 18 months.
Government-backed mixed-use loans
Who should consider a government-backed mixed-use loan
It is ideal if the borrower wants financing opportunities guaranteed by a government entity and financed through an SBA-designated lender. Since loans are at least partially insured in the event of a default, they represent a lower risk to lenders and, in turn, offer favorable rates and fees. As such, qualification criteria are more strict, and the approval and disbursement process can be lengthy.
It may be right for you if you:
- Don’t need funds immediately and can afford to wait.
- Are a business owner with a strong credit history and are in good financial standing.
- Want to take advantage of competitive rates and fees.
Notably, multiple loan programs may be available to you. SBA loans, for instance, allow you to choose among different programs, such as its 7(a) and 504 programs. Rates and qualification requirements can vary depending on a variety of factors, including the loan program and lender you choose. This is discussed in greater detail in our guide on the different types of SBA loans.
I recommend Grasshopper Bank if you’re in search of a government-backed loan. As an SBA-preferred lender, you can trust its expertise and resources to financially support your business. It offers a streamlined application process where you can be prequalified within minutes.
Alternatives to a mixed-use loan
When weighing financing options, there are a few alternatives to a mixed-use loan. Whether you don’t meet the qualification criteria or need more flexible terms, here are some options:
- Rollover for business startups (ROBS): This allows you to use the funds in your retirement accounts tax- and penalty-free with a minimum investment of $50,000. It is not a loan, and although you can complete the process on your own, I recommend using a company from our list of the leading ROBS providers. Many of those offer legal and audit support services to protect you in the event that your ROBS plan is deemed non-compliant.
- Small business line of credit: This is a revolving credit facility that allows you to request a draw and have funds placed into your account of choice, with the balance repaid over time. You can also consider using it in combination with another source of funding. Funds rarely have restrictions, as long as it’s utilized for business purposes.
However, the downsides are that repayment terms are typically short and loan amounts tend to be much smaller than mixed-use loans. If you think a line of credit is ideal, view our recommendations for the best small business credit lines.
- Funds from friends and family: You can approach friends and family to invest in your property, which is often less formal and allows for favorable rates and terms. You can receive funds in the form of a gift, revenue-sharing agreement, loan, or exchange in equity.
A major advantage here is that you can bypass most, if not all of the qualification requirements associated with a traditional loan. See our guide on raising money from friends and family to fund your business.
- Personal loan for business: If you are ineligible for a small business loan, you can aim to get a personal loan, which often has fewer qualification requirements. While loan amounts may be limited compared with other CRE loans, you can use the funds for virtually any business expense. Check out our article for the best personal loans for business funding.
Frequently asked questions (FAQs)
Typically, a mixed-use property will be a building with areas designated for different uses — such as residential, commercial, medical, and retail. For example, it can be a multi-story building where the first floor is a retail store, with the upper floors consisting of residential or office spaces.
The best type of loan varies based on your circumstances. In general, mixed-use loans offer more flexibility when it comes to property eligibility. However, other financing options can sometimes offer more suitable or more competitive rates and terms. This can include bridge loans, commercial loans, and loans from private lenders.
Lenders offering traditional loans typically require properties to be limited to a single use case, whether it be residential, commercial, agricultural, industrial, medical, or retail. Meanwhile, mixed-used loans allow for a building to have a variety of uses.
The difficulty of qualifying for a mixed-use loan will depend on the loan type and the lender you choose. Generally, you’ll need good credit and prior experience managing investment properties to be considered eligible. However, most lenders are flexible and review applications on a case-by-case basis, so there are other factors taken into account when determining your approval.
Bottom line
A mixed-use property loan allows you to invest in property that’s zoned for multiple uses. Loans are often classified as either government-backed, short-term, or commercial. Each has its own set of benefits and drawbacks, and you should consider your budget and investment goals before deciding on a loan type or lender.
