Options For Commercial Rehabilitation Loans

By Author: John Tang
Total Articles: 507
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There are essentially two options for borrowers seeking commercial rehab loans for commercial construction projects - traditional construction loans or commercial hard money (aka private money). Both options have their pros and cons though.

The main benefits with commercial hard money include speed of decision and speed of execution. The disadvantages are obvious; they are expensive and often carry harsh terms. Currently, April 2008, the appetite for private construction loans is waning as hard money lenders continue to be bombarded with loan request as bank financing and cmbs financing continue to feel the pinch of the credit "crisis"; and continue to turn deals down that were financeable just 3 -6 months ago. Hard money lenders are cherry picking and often will choose loans that do not have the complexity and inherent risk that goes along with rehab financing - like good old refinances.

But for solid project, in good markets with good borrower experience, they can expect this to still be a viable option, assuming they'll swallow the 3 -4 points that are normally required.

Traditional commercial rehab bank ...
... loans also have their share of pros and cons. From a traditional banks perspective rehab loans are essentially the same as construction loans. Banks require the same type of documentation on commercial rehab financing (plans, permits, lien wavers, etc) as on ground up construction. The main benefit of course is the fees and rates on are much better compared to commercial private money. However, commercial construction borrowers "pay" for these loans with their time and intense documentation/reporting requirements - brain damage.

Currently, borrowers that want to go the traditional bank route for their rehab financing should think SBA (assuming the borrower will occupy their business out of the subject property). Most banks are just not going conventional and are seeking the guarantee from the SBA in order to mitigate the current level of risk in the finance markets as well as the real estate markets. There are exceptions to this of course for strong borrowers, but for the average business the SBA will probably be the most viable option (and it can be a great option as well).