A mixed-use loan can be used to finance real estate properties with multiple units that are zoned for various uses, including residential, commercial, agricultural, and industrial spaces. They are typically classified as either commercial, short-term, or government-backed. Generally, mixed-use loans have flexible repayment terms ranging from several months to as long as 30 years, with various rates and features depending on the loan type.
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, assessing a property’s condition can help ensure there are no health or safety hazards that might lead to liability concerns or resale issues.
To learn more about the loan process and help you prepare your application, read our guide on how to get a small business loan.
Types of Mixed-use Loans at a Glance
A mixed-use loan can be classified as either commercial, short-term, or government-backed. Depending on the lender you choose, there are varying features, rates, and qualification requirements tied to each loan type. Check out our guide on commercial real estate (CRE) loan rates to learn how rates are determined and to help you find lending options within your budget.
Various loan providers can help facilitate a mixed-use loan, depending on your investment needs. You’ll want to work with experienced lenders who offer flexible terms, rates that fit your budget, and loan amounts that can support the purchase of your real estate investment. Here are our picks:
Commercial Mixed-use Loans
Who Should Consider a Commercial Mixed-use Loan
Commercial mixed-use loans are 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
- Located in an area where mixed-use properties are in high demand, making it an attractive real estate investment opportunity
- Not planning on residing in the acquired property
If you’re looking for a commercial loan, we recommend considering Lima One Capital. 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.
Pros & Cons of a Commercial Mixed-use Loan
Short-term Mixed-use Loans
Who Should Consider a Short-term Mixed-use Loan
Short-term mixed-use property loans are useful for borrowers who partake in fix-and-flip investments, as the project can be completed and sold within a short period. That said, these loans are typically easier to qualify for than other CRE loans—but these generally have higher rates and fees than other financing options. Common sources of short-term financing can include commercial bridge loans and hard money loans.
For our recommendations, see our roundups of the best commercial bridge loans and leading hard money lenders.
This 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 3 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, 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 pre-approvals in as little as 3 days and closings within 10 to 30 days.
Pros & Cons of a Short-term Mixed-use Loan
Government-backed Mixed-use Loans
Who Should Consider a Government-backed Mixed-use Loan
Government-backed mixed-use loans offer financing opportunities that are 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.
A government-backed mixed-use loan 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. We discuss this in greater detail in our guide on the different types of SBA loans.
If you’re in search of a government-backed loan, we recommend our partner Grasshopper Bank. 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.
Pros & Cons of a Government-backed Mixed-use Loan
Alternatives to a Mixed-use Loan
When weighing financing options, there are a few alternatives to a mixed-use loan to look into. Whether you don’t meet the qualification criteria or need more flexible terms, here are some options to consider:
- Rollover for business startups (ROBS): A ROBS allows you to use the funds in your retirement accounts tax- and penalty-free with a minimum investment of $50,000. 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 non-compliant.
- Small business line of credit: A small business line of credit 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 downside 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.
- 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 to 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 options.
Frequently Asked Questions (FAQs)
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.
Yes. Mixed-use loans are generally classified as government-backed, short-term, or commercial. Each type has varying features, rates, and terms; however, they all offer financing opportunities to support your real estate investment needs.
Mixed-use properties can be a worthwhile investment for a variety of reasons, mainly because they usually come with less risk, as multiple forms of income are available. Since they are a popular commercial real estate investment, you also may have more lender options willing to finance the property.
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.
