An Overview On Commercial Real Estate Loans

By Author: beth0101a
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Part of growing you business might include getting a commercial real estate loan. Many feel to get approved it is complex and difficult. As a business owner you need to realize that you need to prepare your credit and your debt to income ratio or you will find the situation with commercial real estate lenders more difficult than if you had fixed your credit and got your debt to income ration below 40%. Our friends at http://capitallynk.blogspot.com/ came up with "examples of eight difficult loan scenarios are described to illustrate two key points: (1) difficulties with commercial real estate loans are not uncommon; and (2) difficulties with commercial real estate loans can be overcome in most cases.

A commercial loan that needs to be closed in 60 days or less.

It is not unusual to discover that a traditional lender considers six to nine months "normal" for commercial loan underwriting. Obviously this will act as a severe constraint if a commercial borrower is trying to buy a property that the seller wants to close in two to three months. If quick funding is essential, the commercial borrower should contact ...
... a non-bank business lender where most commercial real estate loans will close in 45 to 55 days.

A commercial loan that won't work without long-term financing.

What is long-term financing for a commercial loan? Some commercial lenders view 3-5 years as the longest period before a commercial loan will be subject to a balloon payment. If that sounds short-term instead of long-term, most non-bank business lenders can arrange 25-year to 40-year commercial real estate loans for commercial properties. Longer-term financing will often be the critical difference that facilitates a successful business investment (especially because mortgage payments will be reduced dramatically).

Providing financial data to a commercial lender after the loan is closed.

Some commercial real estate loans will have covenants stipulating that the lender must receive financial data even after the loan closing and that the loan can be recalled (forcing the borrower to repay early) if the audit of this data is not satisfactory to the lender. In stark contrast to this, commercial real estate loans via non-bank commercial lenders based on Stated Income will not require business plans or income verification either before or after the loan is closed.

Borrower is self-employed or income is paid on a commission, bonus or incentive basis that is somewhat erratic and difficult to document properly.

Non-bank commercial lenders using a Stated Income business loan program will not require tax returns or any income verification. They also will not require commercial borrowers to sign IRS Form 4506 (which authorizes the lender to obtain tax returns directly from the IRS), a form routinely required by many commercial lenders.

A borrower wants to refinance a commercial property and use $500,000 to $1 million from the proceeds to buy another property.

Most commercial lenders will restrict the maximum cash that can be taken out of a refinancing, with a normal limit of $100,000 to $250,000. It is also not uncommon to encounter restrictions on the use of the cash. With a commercial loan via most non-bank commercial lenders, the commercial borrower could receive unrestricted cash up to one million dollars and use the proceeds without restrictions.

DIFFICULT COMMERCIAL REAL ESTATE LOANS SITUATION NUMBER 6:
A borrower wants to use a substantial amount of subordinated debt (a seller second or other secondary financing) to reduce the amount of cash needed to purchase a commercial property.

Many commercial real estate loans will not permit a seller second or other forms of subordinated debt. With a commercial loan via most non-bank business lenders, a commercial borrower can obtain Combined-Loan-to-Value [CLTV] ratios up to 95% with subordinate financing (including seller seconds).

DIFFICULT COMMERCIAL REAL ESTATE LOANS SITUATION NUMBER 7:
Sourcing and Seasoning of assets or ownership.

For a purchase, commercial lenders will frequently want documentation about where the down payment is coming from (the source, so having limitations about where the funds are coming from is called sourcing). Commercial lenders will frequently have requirements stipulating that the down payment funds must have been in a specific account for a specific period of time, often 3-6 months or longer (this is called seasoning because it is tantamount to requiring that the funds have matured by being in the same place for a while).

Seasoning of ownership is similar to seasoning of funds, except this requirement involves the minimum time someone has owned a commercial property before they can refinance the property. Most non-bank commercial lenders do not have any requirements or limitations involving either sourcing/seasoning of funds or seasoning of ownership.

A borrower needs a $100,000 commercial loan.

What's difficult about this situation? Many/most commercial lenders will have much higher minimum amounts for commercial real estate loans ($250,000 to $350,000 is not uncommon). At most non-bank business lenders, the minimum commercial real estate loan is $100,000."

For many loans the lender will want the following information for the last three years:
* Cash Flow Projections
* Profit and Loss Statements
* Balance Sheets

One of the best forms of unsecured small business loans is commercial real estate loans. However, to apply for one then the lender will want the following information for the last three years.