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.

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.

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.

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.

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.

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%.