A mixed-use loan is used to finance a property that is zoned for at least two different uses. Some examples of these uses can include a combination of residential, commercial, agricultural, industrial, and more.
Mixed-use loans can have a repayment term ranging from several months to as long as 30 years. They are typically classified as either short-term, government-backed, or commercial. Financing options can also include hard money loans and loans from private money lenders.
Lendio is a loan broker we recommend considering if you need a mixed-use loan. You can get up to $5 million in funding on its Small Business Administration (SBA) loans where proceeds can be used to obtain buildings and other real estate. It also has a low minimum credit score requirement of 600.
How Mixed-use Loans Work
Mixed-use loans involve many of the same steps as getting a small business loan. One big difference is that because a mixed-use loan is secured by real estate, your lender may require an appraisal inspection to verify that the value and condition of it is sufficient for 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, assessing a property’s condition can help ensure there are no health or safety hazards that might lead to liability concerns or resale issues.
Types of Mixed-use Loans At a Glance
A mixed-use loan can be classified as either commercial, short-term, or government-backed. While specific features can vary based on the lender you choose, each of these has a typical range of rates, terms, and qualification requirements. Check out our guide on commercial loan rates to learn about how rates are determined.
Loan Type | Typical Rates | Typical Down Payment | Typical Repayment Term | Typical Loan Amount Maximum | Typical Funding Speed | Difficulty of Qualifications |
---|---|---|---|---|---|---|
Commercial | 6% to 9% | 25% | 30 years | $25 million-plus | 30 to 45 days | Moderate |
Short-term | 7% to 20% | 10% | 6 to 36 months | $50 million-plus | 10 to 30 days | Easier |
Government-backed | 5% to 15% | 10% | 25 years | $16.5 million | 45 to 90-plus days | More difficult |
Commercial Mixed-use Loans
Typical Rates & Terms | |
---|---|
Interest Rate | 6% to 9% |
Maximum Loan Amount | $25 million-plus |
Loan Term | Up to 30 years |
Loan-to-Value (LTV) Ratio | 75% |
Closing Costs & Fees | 3% to 6% of the loan amount |
Funding Speed | 30 to 45 days |
Typical Qualifications | |
Credit Score | 640 |
Time in Business | 2 years |
Business Revenue | Varies |
Owner-occupancy Requirements | None |
Debt Service Coverage Ratio (DSCR) | 1.25x |
Who Should Consider a Commercial Mixed-use Loan
A commercial mixed-use loan can be the right choice for you if you’re looking to acquire a commercial property such as a building with office space, a shopping center, or retail store where the other units consist of apartments or other living spaces. In addition to the typical qualification requirements listed above, properties must generally be in good condition with no health or safety hazards.
An advantage with commercial mixed-use loans is the fact that there are no owner-occupancy requirements. As a result, it can be a good fit for real estate investors who do not wish to live in the property.
It could also be right for you if you are:
- A real estate investor looking to get rental income from both commercial and residential tenants
- A business owner who needs a larger office space but also wants to have rental income from other tenants
- Looking to build or construct a new mixed-use development
- Someone who wants to simplify and diversify your streams of rental income among multiple types of tenants
- Located in an area where mixed-use properties are in high demand, making it an attractive real estate investment opportunity
If you’re looking for a commercial loan, we recommend considering Lima One Capital. It offers competitive rates and funding for up to $20 million and more. It can also offer different types of payment options, such as interest-only, fully amortized, and non-recourse lending options.
Pros & Cons of a Commercial Mixed-use Loan
PROS | CONS |
---|---|
Doesn’t require owner-occupancy | Requires a large down payment |
Is easier to qualify for compared to government-backed loans | May be difficult for startups to qualify for |
Is less expensive than short-term mixed-use loans | Has a slower funding speed compared to short-term loans |
Short-term Mixed-use Loans
Typical Rates & Terms | |
---|---|
Interest Rate | 7% to 20% |
Maximum Loan Amount | $50 million-plus |
Loan Term | 6 to 36 months |
LTV & After Repair (ARV) Ratios | 90% LTV, 75% ARV |
Closing Costs & Fees | 2% to 6% of the loan amount |
Funding Speed | 10 to 30 days |
Typical Qualifications | |
Credit Score | 620 |
Time in Business or Experience Required | 2 years’ time in business, or 3 completed rehabs in the last 3 years |
Business Revenue | Varies |
Owner-occupancy Requirements | Not required |
DSCR | 1.00x to 1.40x |
Who Should Consider a Short-term Mixed-use Loan
A short-term mixed-use property loan typically has easier qualification requirements. Common sources of financing can include commercial bridge loans and hard money loans.
Since these loans are typically easier to get, they could be a good fit for you if you
- Plan on replacing or paying off the loan in less than three years
- Are unable to get financing elsewhere due to bad credit
- Have property you are trying to finance that is in need of repairs
- Need to get funding quickly
For our recommendations, see our roundups of the best commercial bridge loans and leading hard money lenders.
While these short-term loans may be easier to get, the tradeoff is that they also typically have higher rates and more fees compared to other financing options. What many borrowers tend to do is utilize a short-term loan to initially finance a property. Once the loan is obtained, borrowers will then work towards becoming eligible for another type of financing. This is usually done by completing repairs to the property or improving their credit score.
For a short-term loan, we recommend considering a provider like AVANA Capital, which offers commercial bridge loans with low interest-only payments for up to 36 months. It can also provide preapprovals in as soon as three days and closings within 10 to 30 days.
Pros & Cons of a Short-term Mixed-use Loan
PROS | CONS |
---|---|
Comes with easier qualification requirements | Has higher interest rate and fees |
Offers fast approval and funding speed | Has short repayment terms |
Has large loan amounts available | Can require lots of paperwork to get approved |
Government-backed Mixed-use Loans
Typical Rates & Terms | |
---|---|
Interest Rate | 5% to 15% |
Maximum Loan Amount | $16.5 million |
Loan Term | Up to 25 years |
LTV Ratio | 90% |
Closing Costs & Fees | 2% to 5% of the loan amount |
Funding Speed | 45 to 90-plus days |
Typical Qualifications | |
Credit Score | 680 |
Time in Business | 2 years |
Business Revenue | Varies |
Owner-occupancy Requirements | 51% |
DSCR | 1.25x |
Who Should Consider a Government-backed Mixed-use Loan
Government-backed mixed-use loans are insured by a government entity but issued through individual lenders. Since loans are at least partially insured in the event of a default, they represent a lower risk to lenders, and therefore typically carry lower rates and fees. Some examples of government-backed loans include SBA loans and loans made through the United States Department of Agriculture (USDA).
In exchange for lower rates and fees, qualification requirements tend to be stricter. It can also take several months to get through the approval and funding process, so it may not be a good fit if you need funds fast.
Other scenarios which may indicate a government-backed loan is right for you include:
- Borrowers who can afford to wait several months for funding
- Business owners with good credit and finances
- Business owners looking to get more competitive rates
When it comes to getting a government-backed loan, you could have multiple loan options. 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. We discuss this in greater detail in our guide on the different types of SBA loans.
If you’re looking for a government-backed loan, we recommend checking out Lendio. With it, you’ll be able to work with a dedicated funding specialist who can find the best match for you in its network of over 75 lenders. With such a large network, you can have more options and better chances of landing an approval.
Pros & Cons of a Government-backed Mixed-use Loan
PROS | CONS |
---|---|
Comes with low interest rates and fees | Has a slow approval and funding speed |
Requires a small down payment | Has strict eligibility criteria |
Has additional business resources offered by some lenders | Has qualification requirements that may vary among lenders |
Alternatives to a Mixed-use Loan
While a mixed-use property loan can have a wide range of qualification requirements, you won’t always be guaranteed to get approved by a lender even if you meet the minimum criteria. Here are some alternatives to consider if you’re having trouble getting a mixed-use loan:
- Rollover for business startups (ROBS): A ROBS allows you to use the funds in your retirement accounts tax- and penalty-free. A ROBS is not a loan, and although you can complete the process on your own, we recommend using a company from our list of the leading ROBS providers. Many of these companies offer legal and audit support services to protect you in the event that your ROBS plan is deemed noncompliant.
- Small business line of credit: Funds from a small business credit line rarely have restrictions on allowable uses as long as it’s business-related. The downside, however, is that repayment terms are typically short, and loan amounts tend to be much smaller than mixed-use loans. You can view our recommendations for the best small business credit lines however and also consider using it in combination with another source of funding.
- Funds from friends and family: You can get funds from friends or family in the form of a gift, revenue-sharing agreement, loan, or 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 instructions for how to ask friends and family for funding.
Frequently Asked Questions (FAQs)
It typically takes around 30 days to get a mixed-use loan. This can, however, vary depending on the type of loan you get and the lender you choose. For example, government-backed mixed-use loans can take 30 to 90 days to get, while loans from private and hard money lenders can be funded in as little as 10 days.
Mixed-use loans can be difficult to get as many require good credit and prior experience with managing investment properties. Loans from private and hard money lenders, however, often have more flexible criteria and the ability to consider more compensating factors to improve your approval odds.
Mixed-use loans are generally classified as government-backed, short-term, or commercial. Each has its own advantages and disadvantages. For example, government-backed loans can offer some of the most competitive rates available, but funding speeds can be much slower compared to other loan types.
Bottom Line
With a mixed-use property loan, you can purchase property that’s zoned for at least two different 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 what is most important to you before deciding on a loan type or lender.