Long term financing shapes how projects move from plan to profit. Many buyers and builders face a gap after construction ends and before steady cash flow begins. This is where permanent loans come in. They replace short term funding with stable, long term debt that supports ownership and growth. This guide breaks down how these loans work, who they fit, and how to prepare for approval. The goal is simple: help you choose funding that matches your plan and risk level.
What Are Permanent Loans?
Permanent loans are long term mortgages used to finance completed property. They often follow a construction loan. Once the project meets set conditions, the lender converts or replaces the short term note with a long term loan. Terms range from 15 to 30 years. Rates may be fixed or variable based on the deal.
One key point to track is the shift from build risk to income risk. Lenders focus less on plans and more on results. They review rent rolls, leases, and net operating income.
- A single clear benefit is stable monthly payments that help with planning and cash flow.
Example:
A small retail center finishes construction with 80 percent of units leased. The owner refinances the build loan into a 25 year fixed rate loan. The new payment fits the rent income and frees capital for marketing.
How Permanent Loans Differ From Other Options
Permanent Loans vs Construction Loans
Construction loans fund the build phase and draw over time. Permanent loans fund the finished asset. Rates and terms differ because the risk profile changes. With a finished property, lenders can measure value and income.
Permanent Loans vs Bridge Loans
Bridge loans fill short gaps and carry higher rates. They suit deals that need quick action or light rehab. Permanent loans suit assets that are stable and ready for long term hold.
How To Qualify And What Lenders Review
Lenders assess the property and the borrower. Expect reviews of credit, experience, and reserves. For the asset, they check appraisal value, lease terms, and income history. Debt service coverage ratio matters. Many lenders want a DSCR of 1.20 or higher.
Example:
An office owner with strong leases and a DSCR of 1.30 secures a fixed rate loan. A similar asset with weak leases faces a lower loan amount or higher rate.
Key Documents You Will Need
- Recent rent roll
- Trailing twelve month income statement
- Appraisal and inspection
- Operating plan for the next year
Permanent Loans For Commercial And Multifamily
Permanent Loans For Stabilized Assets
Permanent loans work best when occupancy and income are steady. Multifamily, retail, and mixed use projects fit well once they reach target occupancy.
Permanent Loans With Agency Or Bank Lenders
Agency lenders often favor multifamily with clear operating history. Banks may support local assets with strong sponsors. Each has different terms on rates, prepayment, and reserves.
Pro Tip:
Lock your rate only after leases stabilize. A small delay can raise value and lower your cost of debt over the full term.
Risks, Costs, And How To Plan
Rates, fees, and covenants shape the real cost. Watch for prepayment terms that limit future sales or refinances. Model cash flow with stress cases. Plan reserves for repairs and vacancy swings.
- One simple planning step is to set aside six months of debt service as a buffer.
Example:
An owner sells early and pays a yield maintenance fee. If prepayment terms were reviewed earlier, the exit plan could have changed.
Conclusion
Permanent loans offer stable funding once a property proves its value. They replace short term risk with long term structure. The right loan supports steady cash flow, clear budgeting, and flexible growth plans. Prepare strong documents, time your rate lock, and match the lender to your asset type. With clear goals and simple metrics, long term financing becomes a tool, not a burden.