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Commercial Real Estate Glossary
Last updated on Feb 19, 2023
2 min read

Mini Perm Loans in Commercial Real Estate

Mini perm loans are generally used to finance an income-generating commercial property that has recently been built, but does not yet have the income to qualify for permanent financing. A variety of property types qualify for mini perm loans, including multifamily apartments, retail, office, and industrial properties. Mini perm loans can technically be classified as bridge loans, but they typically offer somewhat lower interest rates and generally have substantially longer terms.

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In this article:
  1. What are Mini Perm Loans in Commercial Real Estate? 
  2. What are the Terms for Mini Perm Loans?
  3. Mini Perm / Construction Loan Combinations
  4. To learn more, speak with a commercial real estate loan specialist today.
  5. Related Questions
  6. Get Financing

What are Mini Perm Loans in Commercial Real Estate? 

Mini perm loans are generally used to finance an income-generating commercial property that has recently been built, but does not yet have the income to qualify for permanent financing. In essence, the loan allows the borrower to pay off their construction loan, while giving the property time to generate more income. A variety of property types qualify for mini perm loans, including multifamily apartments, retail, office, and industrial properties. Mini perm loans can technically be classified as bridge loans, but they typically offer somewhat lower interest rates and generally have substantially longer terms.

What are the Terms for Mini Perm Loans?

In most cases, mini perm loans will have terms of between 2 and 5 years, which should give a commercial property more than enough time to reach sufficient occupancy to qualify for a permanent loan from a bank, life company, or CMBS lender. Some mini perm loans are interest-only, which can be ideal from a borrower’s perspective, especially since the property may not be generating much income yet. In other cases, mini perm loans may have 20 or 25-year amortizations. In certain cases, mini perm loans may have terms longer than 5 years, but these often have ‘incentives’ to encourage borrowers to pay them off earlier, rather than later.

These longer-term mini perm loans can be divided between hard mini perm loans and soft mini perm loans. Hard mini perm financing has a hard 7-year balloon date, after which the borrower must pay off the principal or default, whereas soft mini perm financing may carry longer terms (say 10 years+), with increasing incentives to pay off the loan. While some mini perm loans may be non-recourse, non-recourse mini perm financing is generally only reserved for well qualified borrowers, and may come with higher interest rates.

Mini Perm / Construction Loan Combinations

Many mini perm loans are issued by banks, which sometimes offer them in conjunction with commercial construction loans. These are referred to as construction/mini-perm combos, and can be planned for before the closing of the initial construction financing. Banks often charge a 1% fee for offering a mini perm commitment at this stage, but this can be well worth it for commercial borrowers who want to ensure that their property will be financed from day one.

To learn more, speak with a commercial real estate loan specialist today.

Related Questions

What is a mini perm loan in commercial real estate?

A mini perm loan in commercial real estate is a loan used to finance an income-generating commercial property that has recently been built, but does not yet have the income to qualify for permanent financing. It allows the borrower to pay off their construction loan, while giving the property time to generate more income. A variety of property types qualify for mini perm loans, including multifamily apartments, retail, office, and industrial properties. Mini perm loans can technically be classified as bridge loans, but they typically offer somewhat lower interest rates and generally have substantially longer terms.

What are the advantages of a mini perm loan?

The main advantage of a mini perm loan is that it allows the borrower to pay off their construction loan, while giving the property time to generate more income. Additionally, mini perm loans typically offer lower interest rates and longer terms than bridge loans. This makes them an attractive option for commercial borrowers who want to ensure that their property will be financed from day one.

What are the disadvantages of a mini perm loan?

The main disadvantage of a mini perm loan is that it is a short-term loan, with terms of between 2 and 5 years. This means that the borrower must refinance the loan within this time frame, or risk defaulting on the loan. Additionally, mini perm loans may have higher interest rates than permanent loans, and may not be available to all borrowers. Non-recourse mini perm financing is generally only reserved for well qualified borrowers, and may come with higher interest rates.

What are the eligibility requirements for a mini perm loan?

The eligibility requirements for a mini perm loan vary depending on the lender, but generally speaking, the borrower must have a good credit score and a solid track record of successful real estate investments. Additionally, the property must have been recently built and must have the potential to generate enough income to qualify for permanent financing. The loan amount and terms will also depend on the lender, but typically, mini perm loans are offered with terms of up to five years and loan amounts of up to 80% of the property's value.

What are the typical terms of a mini perm loan?

In most cases, mini perm loans will have terms of between 2 and 5 years, which should give a commercial property more than enough time to reach sufficient occupancy to qualify for a permanent loan from a bank, life company, or CMBS lender. Some mini perm loans are interest-only, which can be ideal from a borrower’s perspective, especially since the property may not be generating much income yet. In other cases, mini perm loans may have 20 or 25-year amortizations. In certain cases, mini perm loans may have terms longer than 5 years, but these often have ‘incentives’ to encourage borrowers to pay them off earlier, rather than later.

These longer-term mini perm loans can be divided between hard mini perm loans and soft mini perm loans. Hard mini perm financing has a hard 7-year balloon date, after which the borrower must pay off the principal or default, whereas soft mini perm financing may carry longer terms (say 10 years+), with increasing incentives to pay off the loan. While some mini perm loans may be non-recourse, non-recourse mini perm financing is generally only reserved for well qualified borrowers, and may come with higher interest rates.

What are the typical interest rates for a mini perm loan?

Interest rates for mini perm loans can vary depending on the lender, the borrower's creditworthiness, and the type of loan. Generally, mini perm loans have interest rates that are higher than permanent loans, but lower than construction loans. Hard mini perm loans may have interest rates that range from 6-10%, while soft mini perm loans may have interest rates that range from 8-12%.

In this article:
  1. What are Mini Perm Loans in Commercial Real Estate? 
  2. What are the Terms for Mini Perm Loans?
  3. Mini Perm / Construction Loan Combinations
  4. To learn more, speak with a commercial real estate loan specialist today.
  5. Related questions
  6. Get Financing
Categories
  • Commercial Property Loans
  • CRE Loans
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  • Construction Loans
  • Lease-Up Loans
  • Mini Perm Loans

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