Loan Types

1. Vertical/Horizontal

In the context of commercial lending for real estate development, "vertical" and "horizontal" refer to different types of construction and development:

• Vertical Development: This refers to projects where structures are being built upwards, like high-rise buildings. Loans for vertical development would cover the costs of building structures including the materials, labor, permits, and other related expenses.

• Horizontal Development: This involves the development of land horizontally, such as laying roads, installing utilities, and preparing the land for vertical construction. Horizontal development loans might cover the costs of land acquisition and the preparation of that land for further development, without necessarily including any structures.

2. Bridge/Lot

• Bridge Loans: Bridge loans are short-term loans that are used to meet immediate financing needs until long-term financing is secured. These loans are often used to quickly secure a property while arranging for more traditional long-term financing. The interest rates on bridge loans are generally higher than traditional loans.

• Lot Loans: These are loans specifically designed to finance the purchase of a lot or land parcel for future construction. It is generally a short to medium-term loan that is replaced by a traditional mortgage or construction loan once the construction begins.

3. Development (Dev) Loans

• Development Loans: These loans are provided for real estate development projects. They could encompass both vertical and horizontal development, and generally cover the costs of land acquisition, preparation, and construction. It's usually a large loan with a term that matches the development timeline of the project.

4. Pre-Sold and Spec Projects

• Pre-Sold Projects: These are projects where the units (could be residential, commercial, or a mix) are sold before the construction is complete. Loans for such projects would be structured around the sales agreements, and lenders generally consider pre-sold projects to be less risky compared to speculative projects.

• Speculative (Spec) Projects: In spec projects, the units are built without any sales agreements in place, with the expectation that they will be sold in the future. These projects are considered to be riskier from a lender's perspective, and loans for spec projects generally come with higher interest rates compared to pre-sold projects.

5. Business Purpose Only

• Business Purpose Only Loans: These loans are provided for business purposes only, and not for personal, family, or household use. Borrowers must use these loans exclusively for their business operations, including acquiring business assets, financing operations, or pursuing business opportunities. Lenders require borrowers to provide evidence of the business purpose of the loan, and the loan terms are structured around the needs and the risk profile of the business.