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Commercial Loan News, Commercial Real Estate, What's Closing Now

$575,000 – ComCap Private Fund – New Construction Rural AirBnB

Rural West Texas

 

This deal needed to close quickly. They were scheduled close on the property on Tuesday, the 5th of July, but had only submitted their loan request to us on July 1st (that’s right, the Friday before the 4th of July!)
Note: A 10-day extension on the closing was possible IF they could get a commitment by the 5th… otherwise, he would lose the property. But thanks to our private fund, we were able to issue the commitment on the 5th and closed their loan the following week.
In addition to the tight schedule, this particular property was a new-construction house and barn on 36 acres in the middle of Nowheresville, West Texas. The city wasn’t even a true city – it was a “community” with no official resident count (by the satellite photos, maybe 50 people in the town?) However, the property was gorgeous and his goal was to use it as a retreat for people through AirBnB. The borrower had experience in this business and the cash to put down — but had no cash flow in his business and of course, no history of cash flow in the property.
With our private fund, we were able to issue the loan at 50% LTV and escrowed six months of payments.
When we have a special-use vacant property located in a rural area or with no cash flow, we send the deal to our private $20 million fund for consideration. To accommodate for the risk, we simply adjust the LTV. We have gone as high as 90% for strong borrowers with SBA takeouts, and as low as 25% for rural vacant land. If you have a deal that has good collateral but needs to close quickly, send us an inquiry through Loan Finder or give us a call at (888) 959-1648.
Commercial Loan News, Commercial Real Estate, What's Closing Now

$1,495,000 – Acquisition and Rehab for Medical Office

Orlando, FL

This was a purchase and renovation by a husband-and-wife doctor duo. Both the husband and the wife had multiple entities, making this a rather large loan file to process (which is no problem for our ComCap Team!) The purchase price of the office building was $1 million, while the necessary rehab and renovations totaled an additional $495,000. Rolling in final closing costs, working capital and cost overruns, the final loan amount was $1,443,200 — which we closed in 45 days!

We love working with doctors and dentists. If you’re looking to grow, buy, or sell your practice, call us today at (888) 959-1648 or email us at info@comcapfl.com to get your next loan closed! There’s no risk or obligation to explore your options today.

 

Archive, Blog, Commercial Loan News, SBA

New SBA Stimulus Promises Small Businesses Months of Free Money and MORE (EXPIRED)

*Amended on February 23, 2021 to reflect SBA’s Procedural Notice posted on February 16, 2021. Details constantly subject to change. For more information, visit the SBA’s website at www.sba.gov.

As things continue to rapidly evolve in commercial financing during COVID-19, one thing is for certain: small businesses need help more than ever. As it becomes more and more unlikely for a business to walk into their corner bank and secure a loan, private lenders and commercial loan brokers have assumed the role and are coming to the rescue – with the help of the SBA.

This week, the SBA announced its emergency enhancement plans to provide new stimulus for 2021 — and they’re coming in HOT and ready to help small business.

So, if you’re looking to acquire a business, start a franchise, purchase a building for your business, expand or even refinance – NOW is a better time than ever. Why?

Free Money.

That’s right. Unlike the SBA’s stimulus package from the last major recession (which also increased guarantee percentage and cancelled guarantee fees), the SBA has added in an extra bonus of paying THREE full months of principal and interest to the lender on the borrower’s behalf – up to $9,000 per month.

While we wait for the guidelines to officially come out, these are the details that we are hearing from the SBA on how this will actually work…*

For New SBA Loan Borrowers (Approved after Feb. 1, 2021)

  1. Three Months of P&I Payments Made For You by the SBA

For all new SBA loans approved after February 1, 2021, the SBA will make three payments of principal and interest on the loan, paid to the lender, on the borrower’s behalf. These payments are good for all amounts up to $9,000 per month. In addition, the borrower does not need to apply for this relief, as it will be automatically applied to for them, by the lender.

  1. Waiving of Guarantee Fees

In addition to the three free payments, the SBA will also waive SBA Guarantee Fees on all new SBA 7(a), 504, and Micro-loans that are approved starting February 1, 2021. These SBA guarantee fees are paid by the borrower, and are usually around 2-3% of the guaranteed portion of the loan. For example, here are some common amount guarantee fees:

  • $1mm loan = $26k fee waived
  • $3mm loan= $82k waived
  • $5mm loan = $138k fee waived
  1. Increase of Guarantee Percentages for SBA 7(a) Loans

The SBA is also changing the guarantee percentage of its 7(a) loans. These guarantees provide insurance to the lender in case the borrower is unable to repay the loan. In such a case, the SBA would cover the loan payment amount to the lender, thus mitigating the lender’s risk in taking the loan.

While this has no real effect on the borrower, it has major implications for the lenders: it encourages them to fund loans that they wouldn’t have otherwise funded. (Thus, if you were on the cusp, now would be a good time to go back to your lender and try again!) Typically, this guarantee percentage is 75-85%, but thanks to the new guidelines, that guarantee percentage will go up to 90% (or even 100% on loans with commercial real estate!)

With all of these new bonuses, a new $5 million SBA loan will save approximately $135,000 in payments and fees! However, there is a deadline: to qualify, your loan must be approved before September 30, 2021. So borrowers — make sure to apply prior to August 2021, as we will surely see the system bottleneck as it comes to a close…

Who is encouraged to apply?

If you’re looking to purchase, grow or expand your business and require between $500,000 to $5 million, an SBA loan might be for you. SBA Loans cover these requirements:

  • Owner-occupied Commercial Real Estate Purchase or Refinance
  • Debt Refinance
  • Business Acquisitions
  • Partner Buyout
  • Expansion
  • Start-up Franchise
  • Machinery/equipment Purchase

This applies across most industries, even covering hospitality that has bounced back during the pandemic. Unfortunately, this leaves out specific businesses and property types such as gas stations, mobile home parks, and ground-up construction.

Pre-Approval Checklist: What You’ll Need

The SBA loan application and approval process has never been described as “quick and easy” (most SBA loans take about 30-90 days to close), but you can make the process easier for both you and the lender by having these documents prepared ahead of time:

Business Documents

  • Three Years business tax returns
  • Interim Financials (P&L statement and balance sheet – no more than 60 days old)
  • Month-by-Month Financials (may be required for businesses impacted by the pandemic)
  • Business Debt Schedule

Personal Documents (for any owner with a 20%+ stake in the company)

  • Three Years of Personal Tax Returns
  • Updated Credit Score (make sure to double check this!)
  • Personal Financial Statement
  • Resumé (for acquisitions and startups)

And as always, when looking to obtain commercial financing, we advise that all borrowers and business owners keep their big-ticket purchases to a minimum! While a new house or fancy car might be selling at a price that you feel you can’t miss out on, you’ll really kick yourself if it ends up making you miss out on these killer loans!

Where to Apply for a New SBA Loan

Although traditionally, a business’s first instinct is to ask their local bank for a loan, that is no longer a viable option — especially for SBA loans. In order to obtain an SBA loan, you’ll want to apply for a loan with an SBA Preferred Lending Partner, or PLP. However, not all PLP’s fund the same SBA loans, and some only fund specific industries or commercial real estate property types. Your best move, to save time and find the best lender for your loan requirements, is to consult with a Commercial Loan Specialist who can help you examine several different lenders at once. These commercial loan specialists leverage their relationships with PLP’s and behave like a partner to you, the borrower — advocating for you from application to approval to close.

If you’re interested in applying for a new SBA loan today, we encourage you to reach out to our specialists at Commercial Capital Ltd., FL (ComCapFL) and find out how we can help you find the best options for you and your business.

 

 

 

Additional Resources:

Blog, Commercial Loan News, Commercial Real Estate, SBA

5 Loan Document Tips for Commercial Borrowers During COVID-19

Due to the economic impact of COVID-19, commercial underwriting has become more conservative than ever. While the experience is unlike the financial crisis of 2007, which affected the availability of commercial loans — we are seeing a change in the amount of risk a lender is now willing to take on as a result of COVID-19’s other economic effects. This is good news: it means that there is still plenty of commercial money available! However, the parameters that must be met to get funded have dramatically changed.

As we move into 2021, it is expected that cautious underwriting to continue as an industry-wide trend. Thus, borrowers will have to provide more documentation than ever to qualify for commercial loans. Before applying for your next commercial loan, take a few minutes to review our checklist for how to best prepare or the underwriting process. Proper preparation will not only save you time down the road, but may also be a make-or-break in securing the best loan terms in the near future.

Loan Doc Tips 2021

Tip #1: Provide Extra Income Verification

The effects of COVID-19 may have had a significant impact on the income of your business or property in 2020. In order to prove that your business is has a steady track record, be prepared to provide more than the standard 2 years of income tax returns – providing 3-4 years as well as 3-4 years of personal tax returns will set you up to be a more solid candidate.

Every lender has different requirements. Make sure to confirm these requirements ahead of time, and then have the additional documentation readily available – as it will more than likely be called upon.

Tip #2: Prove Higher Debt Service Coverage Ratio

While in 2019, a DSCR of at least 1.15 showed that a business generated enough income to service its debts, such a ratio is no longer accepted as the standard when it comes to applying for commercial loans. In order to put your best foot forward, show how your business is strong enough to last the pandemic by proving a higher debt service ratio of at least 1.2-1.25 or higher.

In order to prove DSCR, banks and lenders used to require copies of bank statements. However, as a result of the pandemic, we’re seeing lenders ask for recent month-to-date bank statements to give a more accurate real-time look at how your business is keeping up with its payments. (These are truly unprecedented times!)

Tip #3: Add your PPP or EIDL to your Debt Schedule

If you received a PPP or EIDL, you’ll need to secure additional documentation for your application. Make sure to communicate with your CPA on whether or not your loans will be forgiven, and then make sure to add them to your debt schedule.

If your PPP loan is forgiven or WILL BE forgiven, make sure to have all statements, payroll, and other documents on hand to support your claim. If you received an EIDL, treat it as an SBA loan in lien position — as it is similar but not superior to a SBA 7a loan.

Tip #4: Re-Verify Your Business and Personal Credit Scores

One of the biggest mistakes we see during the underwriting process is that the borrower was unaware of changes to their credit scores. It is extremely important, more than ever, to know both your business AND personal credit scores from all of the major bureaus.

And please, we know that the deals right now can be tempting — but hold off on making any major purchases, such as a home or even luxury vehicle, until after your loan is approved!

Tip #5: Provide Statement About COVID-19 and Your Business

Treating your lender like they are your partner in your business endeavors is key. In addition to providing all proper income and credit verification as detailed above, consider also providing a personal statement that outlines the effects of the pandemic on your business. Per the SBA, this statement should include:

  1. How has your business revenue/staffing levels been impacted?
    • Do you have a plan in place to return these levels to “normal” operation?
    • What’s your contingency plan in case those levels are not met for the next 18 months?
  2. How have any restrictions such as “stay-at-home orders” and its limitations impacted your cost projections, clientele or access to supplies, inventory and/or equipment?
  3. What other COVID-19 impacts have affected operational cost of your business? (ie. sanitation supplies, protective gear, and other essential costs for protecting the business and its employees?)
  4. Is there any reliable historical financial information for your business based on the current market conditions that can predict its probable success?
  5. How concentrated or diversified is your customer base? and How dependent are you on those concentrations?
  6. How diversified are your vendors/suppliers? and How dependent is the success of your business on those particular vendors/suppliers?

Whether or not you’re applying for an SBA loan, make sure you have this comprehensive statement ready to go.

In conclusion…

Times have changes, and so must your loan application. By thinking like a pandemic-era lender, and preparing your documents like a pandemic-era invest, you’ll save yourself a lot of time from having to go back to the drawing board… and these days, timing is everything!

Speaking of timing, do yourself one better than simply implementing these tips — consider working with a Commercial Loan specialist, like those at ComCapFL. Unlike a broker who simply finds a loan that matches your requirements, a commercial loan specialist leverages their private funds and industry relationships to find the loan that works for you and your specific goals. Working with a commercial loan specialist from the beginning of your loan process won’t only assist you on elements of the loan, such as the application — but it will also keep you from having to start all over again in the case of push back or denial!

At ComCapFL, if we accept your loan request, we’ll close your loan. To learn more, email us today at info@comcapfl.com or call us at (888)959-1648 and find out what we can do to help fund your commercial real estate or business project.

Blog, Commercial Loan News, Commercial Real Estate

The Complete 2021 Guide to Commercial Real Estate Investing

Curious about commercial real estate? Luckily, ComCapFL has pulled together all of the basics of commercial real estate investing and compiled them into one place: the 2021 Guide to Commercial Real Estate Investing!

Read on for a comprehensive list of information on commercial real estate and financing, terms to know, definitions, explanations and more…

What is CRE?

Commercial Real Estate refers to a building or piece of land that is used to facilitate business or generate income. Thus, commercial real estate is considered an investment, with the owners or investors typically leasing the space out to a tenant to generate monthly income.

Commercial real estate can also be occupied by the owner, such as when a welding business owns and occupies their own warehouse; or when a restauranteur owns and serves food out of their own building.

Unlike residential real estate, commercial real estate is not purchased by the investor for the sake of living in or on the property. While something like an apartment building (also referred to as a multifamily home) might first strike you as a residential property, it is actually considered a commercial property. This is because the landlord charges a monthly rent, and therefore achieves an income from owning the property, thus making it an income property.

Commercial Real Estate Property Types

While there are several categories and subcategories of commercial real estate property types, they are often categorized into four main groups, also known as the Four Food Groups of Commercial Real Estate. They include multifamily, industrial, office, and retail properties.

Multifamily

While multifamily housing is residential in nature, the primary purpose of a multifamily property as commercial real estate is to generate income by charging tenants rent.

Types of multifamily properties include anything with more than one unit, such as duplexes, townhomes, high-rise apartment complexes, and condominiums. They’re typically classified by their size/number of floors into either low-rise, mid-rise, or high-rise buildings.

Industrial

While some are investor income properties, industrial properties are typically owner-occupied and exist for the purpose of manufacturing, assembling, storing, and distributing goods (for example: storage, warehouses, manufacturing plant trucking terminals). When it comes to an industrial property, a single business is typically the occupant of all (or at least 51%) of the space and the commercial property is fundamental to the operations of that particular business. Industrial properties are built to suit the specific needs of the business of which primarily occupies the industrial properties, and usually require complete renovation to host a different business.

Additionally, industrial properties may also contain office space. However, if the industrial property contains both a warehouse-style space and offices that are not manufacturer-specific, they could be considered flex warehouses, which fall into the mixed-use category (discussed in more detail below.)

Office

An office building includes one or many office spaces, to be occupied by one or more businesses. They may be located in suburban areas or may be centrally located in large cities (often referred to as a Central Business Districts or CBDs). They are typically classified into one of these three categories:

Class A – the most high-end buildings with the best amenities, in highly desirable areas/markets

Class B – high-quality buildings with average amenities, in lesser-desired areas/markets

Class C – run-down buildings with little amenities, in the least-desired areas/markets

Each property classification reflects a different risk and return because each property is graded according to a combination of geographical and physical characteristics. Although there is no precise formula for how properties are placed into each class, these letter grades are assigned to properties after considering a combination of factors, including the age of the property, location of the property, tenant income levels, growth prospects, appreciation, rental income, and even the building’s amenities (including the lobby, elevators, inside floor access, valet, covered/open parking, and more.)

*It’s important to note that office buildings, like multifamily properties, are also categorized by size as either low-rise, mid-rise, or high-rise.

Retail

Retail properties contain one or more storefronts and include malls, strip malls, town centers, grocery marts, factory outlets, and more. Typically, large retail centers contain an anchor tenant such as a large grocery chain store, which draws customers to the shopping center.

Retail properties can be a mix of multiple-storefront buildings and standalone buildings. These stand-alone buildings are referred to as out-parcels and typically house banks or fast-food restaurants. (These can be part of the property’s income or sold separately to an owner-occupied business or other owners as an income property.)

Mixed-Use: the Fifth Food Group

Mixed-use properties are often considered the Fifth Food Group of Commercial Real Estate and are made up of a combination of two, three or even ALL FOUR of the aforementioned property types. For example, a mixed-use property in your neighborhood may be the apartment building with retail stores and restaurants located on its first floor. Mixed-use buildings like these are typically located in larger towns and cities, where space is limited.

Special-Purpose Property Types

Although the aforementioned property types are considered the core of the commercial real estate investment industry, there are additional property types that pose slightly more difficult challenges in financing and operation.

While special-purpose properties are also considered investment real estate, they are also more difficult to finance, since a typical special-purpose investment property has limited appeal. The appeal depends on the business that occupies the special-use property, which may cause it to be more or less liquid as collateral and ultimately, more risky to the investor.

Special-purpose properties include hotels, raw land, gas stations, theaters, concert halls, sports centers, senior living, churches and other places of worship, recreation centers, automobile sales lots, and even marinas.

Raw Land

Commercial real estate can also include land that is available for commercial development. Land as a commercial real estate investment can include land for building residential communities, but can also include land for farming and other agricultural business activity (depending on the zoning.) Raw land can essentially be used to build any of the Four Food Groups of Commercial Real Estate and Special-purpose buildings.

Now that we’ve discussed the types of properties that an investor might be considering, let’s take a look at the next part of the process – understanding the financing aspect of commercial real estate.

Commercial vs. Residential Mortgages

With residential mortgages, the lender’s decision to approve the loan is heavily reliant on the borrower’s personal income and credit. Lenders inspect the borrower’s personal credit profile and annual income and debts, placing a smaller emphasis on the property (provided it appraises for the intended sale price or contract purchase amount and passes minimal inspections prior to the closing.)

Unlike the residential mortgages, commercial real estate mortgages are used for properties with investment or business purposes. While most residential mortgages are uniform in property type (be they single family homes, townhomes, or condominiums), commercial property types are diverse and complex. This means that commercial properties require significantly more analysis and carry a much higher investor risk for the collateral. With that distinction comes an entirely different set of rules on how they operate.

Thinking of the Commercial Lender as an Investor

To understand how a commercial real estate mortgage lender looks at a commercial property and potential borrower, in the context of making a loan, it’s important to realize the commercial lender is also an investor. Unlike residential lenders, which are more concerned with the borrower’s ability to pay their mortgage, the lender/investor is more concerned with the investment property’s collateral, and ability to generate sufficient cash flow in the form of net operating income to cover the debt service (payments of principal and interest).

[Net operating income, or NOI refers to the sum of all revenues (leases and other monthly fees) minus all the expenses required to operate the building. These expenses include property taxes, hazard and liability insurance, regular maintenance, and repairs. Expenses may also include an allowance for capital expenditures for the purpose of replacing roofs, HVAC units and other high-cost capital equipment that wears out over time, plus an allowance for vacancy and management fees.]

In addition to NOI, lenders consider the Five C’s of Credit Analysis (character, capacity, capital, conditions, and collateral), with the most weight given to the capacity, or the borrower’s ability to debt service the loan based on the underlying property’s NOI.

Now that we’ve covered commercial lenders and their priorities, we can explore the different types of commercial loans that are available. Before we dive in, let’s define the important elements of a typical commercial mortgage or loan.

Elements of a Commercial Real Estate Mortgage or Loan

It’s very important to know the elements of a commercial mortgage or loan and how those elements work together to meet the requirements of your commercial real estate investment. Depending on the situation, the elements of a commercial mortgage or loan change and adjust to suit the lender and the borrower requirements. (For example, if the borrower needs to close as quickly as possible, these elements would change to account for the additional risk that the lender would assume by expediting the processing of the loan.)

The elements of a commercial real estate mortgage include:

  • Loan Amount – the amount that the borrower wishes to obtain from the lender
  • Rate – the fee the lender charges for servicing the loan. Unlike residential mortgage rates, commercial mortgage rates come in all sizes. They also tend to be higher, and since they are coupled with shorter repayment terms, tend to carry higher risk to the borrower.
    • Prime Lending Rate – the interest rate that commercial banks charge their highest-rated borrowers (typically large corporations, and rarely ever individuals or small businesses). It is usually determined by the federal funds rate, which is the overnight rate that banks use to lend to one another.
    • Fixed Rate – constant interest rate for the entire period of the loan.
    • Variable Rate – (also referred to as an adjustable rate) when a loan starts with one interest rate for a certain amount of time, then adjusts for the next period of time on the loan. The change in rate is usually dependent on an index such as the Certificate of Deposit Rate or the Bank Bill Swap Rate. While loans with these rates may be attractive with their below-market appeal, keep in mind that when the rate adjusts, it might mean a significantly higher monthly payment.
  • Terms – the length of time for which the borrower will be responsible for making monthly payments. In commercial loans, the term of the loan is usually expressed in years, whereas smaller loans like car loans are expressed in months.
    • Terms as a plural may also refer to the total specifications of the loan, including LTV, rate, requirements, etc.
  • LTV – also known as Loan-to-Value ratio, this percentage represents the relationship between the loan amount and the value of the collateral (ie. the commercial real estate that’s being financed.) Ideally, it’s favorable to have a low LTV because rates are more competitive. However, with a low LTV, you’re also committing to a larger deposit. For example, if your loan is 70% LTV, then the loan would provide 70% of the collateral’s value, and you would need to provide a 30% deposit to secure the loan.
  • Collateral – assets that you are willing to put up to secure the loan. In the case of a default, the lender has the right to seize the collateral in lieu of payment. Collateral can be any property with a title of ownership that can be transferred, including property, buildings, warehouses, factories, equipment, and even future accounts receivable.
  • Balloon Payments – a large portion of the borrowed principal is that is to be repaid in a single payment at the end of the loan period. Balloon payments can yield a more affordable monthly payment, but may become unmanageable if the borrower is unable to pay off the lump sum due at the time the loan is called.

Now that we know the elements of a commercial loan, let’s explore the many different types of commercial loans that are available.

Types of Commercial Real Estate Mortgages, Loans, and Programs

Conventional Purchase

Conventional loans refer to commercial mortgages that are secured by a lien position on the commercial real estate of which it is financing. Eligible property types include the Four Food Groups of Commercial Real Estate as well as hotels, churches and worship centers, and mixed-use properties.

Conventional commercial loans typically employ a maximum LTV of around 70% (depending on the deal, can be approximately 10% higher or lower), with terms ranging from 3-15 years and amortizations in the 10-30 year range. All of these numbers vary depending on the lender and the strength of the deal.

Conventional loans may be non-recourse, limited recourse, or full recourse.

  • Non-recourse: In the case of a default, the lender may seize the collateral but may not seek any further compensation, even if the value of the collateral does not fully cover the defaulted amount on the loan.
  • Limited-Recourse: In the case of a default, the lender can only collect on the collateral that is named in the original agreement. Thus, the lender is limited in not being able to seize the borrower’s additional assets.
  • Full-Recourse: In the case of a default, the lender may seize the collateral named in the original agreement as well as additional assets of the borrower’s to fulfill the full loan obligations on which the borrower has defaulted.

Conventional loans typically have a maximum LTV of 75-80%, while some lenders can stretch up to 85% in limited circumstances for financially strong transactions. Borrowers should expect to have hard cash equivalent liquidity , while being able to maintain a post-closing liquidity (PCL) sufficient to service their debt at the levels dictated by the lending institution’s credit department. Most conventional loans also call for an overall net worth equal to or greater than the loan amount requested.

Conventional loan transactions will need to be able to meet a Debt Service Coverage Ratio or DSCR of 1.15x or more (depending on the program). This ratio is calculated by taking the adjusted NOI, and dividing the annual debt service by the anticipated amortizing term and interest rate.

Refinance

A commercial refinance loan allows the borrower to renegotiate the terms and conditions of an existing loan, typically at a lower rate. However, the owner can also opt for a cash-out refinance loan.

A cash-out refinance requires the owner to have significant equity in the commercial property, as the refinance deal is considered a lien against the original mortgage. These refinance loans are most helpful in the case of needing to complete renovations, repairs, purchasing new equipment, replacing the roof, and more. In addition, these loans can also be leveraged to provide liquidity to purchase more CRE. While fast cash-out refinance loans are also available, they also usually carry a higher interest rate than the original loan for the commercial property.

Construction

Construction loans are exactly what their name suggests – funds intended for constructing a commercial building or providing renovations/modifications to an existing commercial building.

Construction loans carry significantly more funding requirements. The borrower must provide a blue book of the projected plans, including blueprints, floor plans, cost projections, and a list of suppliers and contractors that will be used. A licensed, reputable builder must also be attached to the project (unless you are a qualified general contractor with a history of success, but this is rarely accepted.) In addition, the property must be appraised, and the borrower must have proof of income, good credit and at least 20% to put down on the loan.

Bridge Loans

Bridge Loans bridge the gap during times when financing is needed but not yet available. They are also known as gap financing, interim financing, or swing loans

Both corporations and investors may obtain bridge loans, which can be customized by the lender for many different requirements. These requirements may include making improvements, renovations or repairs to CRE prior to a permanent mortgage. Bridge loans are also used for tenant improvements (TI‘s), lease-up and other expenses in the interim or while stabilizing a property, all which help the borrower qualify for better rates and terms.

One use of a bridge loan is to utilize the equity in their current commercial real estate for the down payment on the purchase of another investment property until securing a permanent financing solution. While bridge loans are primarily secured by commercial real estate, these loans may be backed by other forms of collateral, including business assets.

A bridge loan may also allow the borrower to meet current obligations by providing immediate cash flow. Bridge loans are usually short-term, averaging in terms of only 12-24 months. Generally, they are interest-only, but an amortizing payment is may be required to service the debt. The rate may be at a slightly higher interest rates than a permanent mortgage, however, the monthly payment or cost of debt service is generally about the same.

CMBS/Conduit

Commercial Mortgage Backed Securities (CMBS), also known as Conduit Loans, are an extremely attractive option for stabilized properties with national credit tenants. These loans offer the most competitive rates, generally lower than any other bank mortgage option, with fixed rate terms of 10 years. Since the collateral is required to be a high-quality, stabilized income property, the rate is fixed against a margin such as US Treasuries, or LIBOR (now SOFR).

The conduit mortgage is a regulated security with a fixed period and return. CMBS mortgages have two distinct characteristics: they are technically not prepayable (and if they are, will have a yield maintenance penalty.) They are assumable by another qualified sponsor, which creates a unique, intrinsic value to this class in the event that interest rates are rising. CMBS mortgages also have special provisions in place to protect the mortgage in the event of any malfeasance or potential losses.

A conduit loan is packaged into a pool with other similar-type commercial loans, then securitized and sold in the secondary market to institutional investors. The loans in the pool are held in trust and the stabilized property and cash flow serve as collateral for the mortgage-backed security.

Preferred & JV Equity

There are two main types of CRE debt instruments that may be used with senior debt to increase required liquidity, reserves, or cash assets to a project when needed. The two main types of these CRE debt instruments are Preferred Equity and JV (Joint Venture) Equity.

Preferred Equity is used when a minority of the liquidity is required, and is priced at an IRR less than Joint Venture equity (which provides a majority of the liquidity and prices higher accordingly.) Preferred Equity may be used when the liquidity requirement is less than 50% of the total cash or liquidity value. Preferred Equity is less costly than JV Equity, with its pricing based on an IRR formula (Internal Rate of Return), consisting of an equity component plus a coupon rate.

JV Equity may be used when cash liquidity or reserve requirements are more than 50% of the total liquidity available. JV Equity is priced higher than Preferred Equity, but with similar uses and characteristics including an IRR percentage-based pricing formula.

Hard Money

Hard Money or Asset-Based loan is a type of mortgage that is secured by real property, typically from private money lenders rather than banks. Hard money loans are usually considered loans of last resort or short-term bridge loans, but may also be used to purchase non-income producing property such as land. Thus, they have a higher cost and lower Loan to Value (LTV) ratio, generally a maximum of 50% LTV. The basis of the loan is the value of the hard asset, or the underlying real property, making the hard asset the primary collateral. Due to this, these loans are fairly easy for a borrower to obtain.

Hard Money loans are only offered in periods of less than 24 months and on an interest-only debt service, rather than amortizing.

Hard Money loans are useful in many circumstances for early-stage and/or land acquisition for large projects, or in a time crunch when credit or documentation is unavailable, or when deposits or a contract are at risk.

Hard money loans may be used in turnaround situations, in short-term financing, and by borrowers with poor credit but substantial equity in their property.

 Mezzanine

Mezzanine financing is a hybrid of debt and equity financing that allows a lender the right to convert to an equity-interest in the company or project in case of a default (generally after other senior lenders are paid).

Mezzanine financing allows for greater flexibility whether or not additional equity instruments are attached to the debt. Frequently associated with acquisitions and buyouts, Mezzanine financing may be used to prioritize new owners ahead of existing owners in case of bankruptcy.

Mezzanine financing is one of the highest-risk forms of debt, as it bridges the gap between debt and equity financing. It is inferior to pure equity but superior to pure debt. However, as it often receives rates between 12% and 20% per year, it’s generally used as a short-term solution in terms averaging 12-36 months.

Tenant improvements

This special class of CRE loans may cover tenant improvements and lease-up expenses, allowing an investor to make improvements and cover the costs of lease-up expenses prior to stabilizing a recently improved property.

Investors may use these special CRE loans with a permanent purchase or refinance loan before the collateral is fully stabilized.

Alt-A Loans

Alt-A loans are especially useful for properties that are considered one-off a prime loan. Mixed use, non-conforming and rural sub-market properties that normally wouldn’t be considered for a commercial mortgage by the corner bank may find ample programs with Alt-A, along with a multitude of rates and terms.

Agency (Government-backed) Loan Programs

Freddie Mac, Fannie Mae, and other agency programs provide incentives or insurance to lenders. This allows them to take on more risk for CRE mortgages by using these programs.

The Federal Home Loan Mortgage Corp., also known as Freddie Mac (FHLMC) insures many multifamily loan programs for multifamily housing, student housing, senior housing, or affordable housing properties. These mortgages may be held in the FHLMC portfolio or sold to bond investors. Terms and options may include fixed or floating rates (which may or may not include an interest-only period) and are typically amortized over 25-30 years. (Note: Shorter-term programs of 5-7 years are available through the PPP, which include fixed rate and hybrid loan choices.)

A Federal National Mortgage Association mortgage, also known as a Fannie Mae mortgage, offers the most competitive terms. These include fixed and floating rate financing for multifamily properties, including apartments, student housing, affordable housing. These terms are especially competitive when paired with the Low-Income Housing Tax Credit (LIHTC) program, for assisted living and other healthcare facilities, mobile home parks and more.

Fannie Mae financing is also an option for financing properties previously under HUD legacy programs that are being converted to Section 8 housing under the Rental Assistance Demonstration (RAD) program. However, prepayments can be an issue, and qualifying can be challenging, as Fannie Mae loans require very experienced borrowers with strong financial statements and rigorous property underwriting.

Alternative Documentation (Full/Lite/No-Doc Programs)

Alternative documentation is a process designed to expedite loan approvals in cases where the full documentation may not be available. For these types of loans, the lender accepts alternative documents from the borrower, such as verification of income, made on the loan application.

In a Full Document loan, the borrower provides all forms of financial documentation including tax returns, personal financials, credit and historical & current property operating statements and rent rolls.

Light Documentation (Lite Doc) loans require the borrower to provide a less stringent version of financial documents that may include W-2s, paycheck stubs and bank statements. The loan decision is weighted on lighter underwriting requirement and examination of the applicant’s financial documentation, and the associated income property documents.

These loans often offer more flexibility than conventional and traditional loans, and might be a good option for borrowers with special situations including recently acquired properties, properties acquired through REO or foreclosure sales, partially stabilized properties or urgent closing deadlines. These are also very useful when the collateral value is higher than the cash flow supports.

No Documentation (“No Doc”) loans require even less financial documentation than Lite Doc loans. These loans offer more flexibility than Full or Lite-Doc loans, and are also an option for borrowers with special situations, like having recently acquired or partially stabilized properties and when the collateral value is higher than the cash flow supports. They are especially useful alternatives for self-employed or recently divorced borrowers.

These loan decisions are based on no formal financial documents, but rather the individual borrower and collateral value. Lenders impute the income and expenses in a No-Doc loan decision based on the property type and location. Be aware that with No-Doc loans, since there is less concrete documentation, the lender risk is increased and thus rates adjust accordingly.

SBA Loans for CRE

If you own a business and plan on purchasing a building for business use, then you may be eligible for an SBA loan. Your business must occupy at least 51% of the building to qualify for these loans.

These loans are insured by the Small Business Administration for up to 75% of the loan amount. The SBA is able to do this because it provides the largest federal loan insurance program which helps small business start, operate and expand, adding employment to the economy.

SBA loans are not actually funded by the SBA, but rather by a list of approved lenders. Of these lenders, some have received the designation Preferred Lending Partners or PLP’s which allows them to originate loans without the direct supervision of the SBA. The SBA provides Standards of Practice (SOP) guidelines outlining their standards for eligibility requirements, documentation, financial analysis, and virtually every step of the loan process for PLP’s to follow.

According to the SBA website, in order to be eligible for an SBA loan, you must:

  • Be a for-profit business
  • Do business in the United States
  • Have invested equity in the business
  • Have already exhausted your financial options

When to Choose an SBA 7a Loan

These SBA loans are beneficial because they are the only loans available to most businesses, helping them to level the playing field and compete. The most flexible of the SBA loans is the flagship SBA 7(a) series. Covering amounts of less than $150,000 all the way up to $5 million, these loans may be used to:

  •    Purchase Land/Building for Your Business
  •    Finance Construction for Your Business
  •    Buy a Business
  •    Expand a Business
  •    Refinance Existing Debt
  •    Buy Supplies, Inventory for Your Business
  •    Add a Marketing Campaign
  •    Purchase Equipment or Machinery for Your Business

An SBA 7(a) loan to can be used to essentially fund all of a business’s needs. The 7(a) loan rate and terms are set by the SBA – such as WSJ + 2.75% and 10 years for business only, or 25 years for businesses with commercial real estate (fully amortizing).

When to Choose an SBA 504 Loan

These loans are more specific than SBA 7(a) loans, with funding up to $30 million. To qualify, a business must be stabilized and and have an experienced commercial real estate owner. Projects that qualify for this type of funding include:

  •    Purchasing an existing building
  • Refinance a higher-cost mortgage loan
  •    Building a new facility
  •    Renovating an existing facility
  •    Buying land or make land improvements (i.e. parking lots, landscaping)
  •    Investing in machinery or equipment
  •    Refinancing debt incurred through the expansion, renovation, or repair

SBA 504 loans provide you with up to 90% LTV financing, fixed interest rates, longer amortizations, and no balloon payments. These loans offer the best rate and terms for a business and include a fixed-rate loan, amortized over 25-30 years.

*Note: While SBA loans offer the best of the best in rates and terms, they typically require a lengthy and particular application process. If you are looking to close in less than 90 days, you might need to consider a different form of financing.

Where to Get a CRE Loan

Banks

Whereas banks might be the most top-of-mind choice for property financing, they are also the most difficult to work with when it comes to securing a commercial loan. Unless you have an owner-occupied building with a business that is in excellent standing with great credit – it’s more than likely that the bank won’t be your best bet. Also, they’re notorious for long processing times and last-minute reneging on their decisions to fund. (This is particularly prevalent in the post- COVID-19 environment.)

Private Commercial Lenders

Private commercial lenders are non-institutional private money lenders that lend to small- and medium-sized businesses, or individual investors, specifically with real estate collateral. They typically require less paperwork and are quicker to fund. Many private lenders have specific specialties — some will only fund multifamily and mixed-use properties, while others are PLP lenders and only do SBA loans.

A common misconception is that private commercial lenders imply high fees and costs, but this is not always the case. Private money often carries less fees and closing costs, and often comes with interest-only payments versus principal and interest payments – so the actual payment may be similar to rates that are available on fully-amortizing loans. However, as previously mentioned, it’s best to focus on entire picture of the loan as it pertains to your needs and not to simply fixate on the rate. Sometimes it’s more important to consider the timing and solutions that fit the requirement, rather than simply focusing on the interest.

*Note: There is not much private money available, unless there is a CRE asset involved – that is the difference between private equity and debt!

Hard-Money Lenders

Hard money lenders (or Asset-based lenders) provide short-term loans based on the value of the commercial real estate. These loans typically carry a lighter application process with quick approvals, making them faster and easier to obtain than a traditional commercial loan. Hard-money loans are a great option for those with credit challenges who want short-term financing options. However, because of the higher associated risk, these loans typically have higher interest rates and an LTV capped at a maximum of 50%.

Commercial-Backed Security Lenders (Conduit Lenders)

Commercial-backed security lenders, also known as Conduit lenders, issue a security which is based on the commercial real estate collateral. The most notable benefits of conduit loans include the following: they are assumable if you sell the commercial real estate, and they are non-recourse. However, these loans are not for everyone and typically require a minimum loan amount of $5 million, and are reserved for well-stabilized properties with regional and national brand tenants (for example: a downtown office tower). They also require an experienced sponsor (borrower), and stable commercial tenants.

In addition, conduit loans have special provisions to protect the ROI in the event of poor management or other negative factors. They typically carry a standard term of 10-years and are not prepayable, or otherwise require stiff Yield Maintenance penalties – but they have other features most CRE mortgages don’t. Since they are primarily based on the cash flow from the collateral and the term is predetermined at a fixed rate, they are assumable by another sponsor. This is a unique feature that adds to the main attraction of CMBS, which is the low interest rate, typically lower than all other commercial real estate mortgages.

CRE Mortgage/Loan Application Checklist

We have covered everything there is to know about the commercial property types, elements of a commercial real estate loan/mortgage, types of loans available, and types of lenders, but what does one need to apply for a commercial loan/mortgage? Applying for a commercial loan requires a lot of time and documentation (unless it’s a hard money loan, which typically closes in days with very little document requirements.) Whereas every loan and lender may ask for additional documentation, the standard ask typically consists of the following:

  • Two – three Years of personal tax returns (may also include business tax returns)
  • Financial statements, records, and books (if business is less than three years old, then provide all years of records since in business)
  • Any debts, including contingent and off-balance-sheet financing (ie. leases)
  • A cash flow projection for the business (only in some cases)
  • Credit reports of the business and all of its owners/partners
  • Legal registration of your business entity (ie. limited liability) with the Secretary of State, Division of Corporations
  • A third-party appraisal of the property
  • Business plan that outlines the intended use for the property
  • Resumés of all management
  • Proof of citizenship

If your commercial real estate is being purchased for construction or a new/startup business, you may also be required to provide a Pro-Forma document. Pro-forma provides a financial model and outlook for the business in the future, or once the building is completed and the business is stabilized. These projections are realistic predictions based on past performance, including income statements, cash flow, balance sheets, and costs and liabilities, to name a few.

The Secret Weapon: Commercial Loan Specialists

With everything that is happening with the economy and borrowing in 2020, it’s more important than ever to have a plan. While this is an incredible time to invest, it’s also more difficult than ever to navigate the commercial lending landscape. Instead of going at it on your own, you may want to consider starting the process with a Commercial Loan Specialist.

Unlike singular lenders or brokers who simply match you with a loan (and then leave you to fend for yourself,) a commercial loan specialist works with you and your specific requirements, qualifications, and goals to custom fit and close the commercial loan that is right for you. Often times, these specialists have funds of their own; however, they also have many more layers of resources, including being plugged into large networks. Commercial Loan Specialists spend years fostering relationships with lenders, brokers, banks, and more.

By beginning the process with a commercial loan specialist, you also get the benefit of saving the most important commodity – TIME. For example, when applying for a loan at the bank, one might not be approved and then will have to start the application process all over with a different lender. In contrast, if you apply for financing with a commercial loan specialist, the specialist maintains your application and simply adds or subtracts elements to fit requirements of the next loan. The commercial loan specialist works best in this way, by utilizing their often vast experience and creative solutions to make sure your loan – the right loan – closes.

By applying once and creating a partnership with a specialist who knows and understands your investment plan, you’ll save weeks or even months in approval and closing times – and you’ll save yourself the headache of having to reapply.

Conclusion

As you now know, commercial real estate investing is a broad, complicated business with many elements and possibilities to consider. Before investing in commercial real estate, it’s important to have a specific plan about what your investment/business goals are, and how your commercial real estate will help you achieve those goals. Knowing all of your specific requirements and qualifications will save you and your future lender lots of time and money. In addition, having an idea of what type of loan and lender that is right for you will also help steer you in the direction of success.

If you are a first-time investor, be sure to also check out our upcoming articles, with subjects like how to take advantage of opportunities in commercial real estate during COVID-19. After learning the basics in this article, gaining additional insight will help you immensely in becoming informed on your next steps!

As always, you can count on the commercial loan specialists at Commercial Capital Ltd., FL to keep you educated and informed on all current topics that are trending in commercial lending. For assistance on your commercial real estate loan or to explore your options, please give us a call today at (888) 959-1648 or email us at info@comcapfl.com.

Blog, Commercial Loan News, Commercial Real Estate

Commercial Real Estate Deals Increase Amid COVID-19 Pandemic, NAIOP Says: How You Can Take Advantage

The impact of the COVID-19 pandemic has been felt throughout the economy, but maybe not in all the ways one would expect.

According to Ron Derven of NAIOP’s Development Magazine, “The COVID-19 pandemic is having a greater impact on commercial real estate than the global financial crisis of earlier in this century. That was a credit and liquidity crisis. The pandemic directly impacts the demand for space…”

As most Americans struggle to keep their jobs and pay their mortgages, commercial real estate investors with cash on hand are actually finding opportunities en masse. For this reason, there is no greater time than NOW to look for strategic opportunities to place investments for when the economy returns to full health! If you are a seasoned investor or are looking to invest for the first time, follow these tips on how you can best take advantage of the current state of the commercial real estate market…

Focus on the Long Game

With the current state of the economy, you’re unlikely to benefit from fast deals. On the other hand, making strategic, long-term investments are more likely to pay off.

Since the upturn of the economy widely depends on the country’s ability to provide and distribute a vaccine for COVID-19, it’s very difficult to predict how quickly things will pick back up. In addition, since so many small businesses were left out of the first round of the CARES Act, it’s hard to say how long retail spaces and office buildings will remain vacant. This is especially important to note as individuals continue to pivot to find COVID-friendly employment solutions, such as developing businesses that work from home.

For example, it’s important to note that the work-from-home trend is not likely to be permanent; and thus, office buildings will eventually be full once more. As more and more workers develop Zoom fatigue and begin to crave professional/social interaction again, movement back into office buildings and even retail stores will pick up — however, offices will need to evolve with the times. Long gone are the days of tiny cubicles and cramped conference rooms! In order to compete, office space will need to become more open and flexible, which leads us to our next tip…

Take Advantage of Vacancies to Renovate and Upgrade for Higher Rent Rolls

If you have cash reserves on hand, consider investing them into the future of your CRE. Although we’re likely to see vacancies increase in the short term, things will eventually pick back up. That is why, if your building is in need of repairs or renovations, now is the time!

Especially for investors that hold office space properties, it’s important to consider renovations now more than ever.

Maria Sicola, a founding partner of CityStream Solutions, a consulting firm, says this:

“The open-office plan concept, as we know it today, will be a trend of the past. Issues with noise, inability to concentrate and numerous distractions were already creating issues with productivity. Square footage per employee was shrinking to levels that, in some cases, were precariously close to violating codes. The move toward efficiency and lowering costs — while still important to the corporate bottom line — will now give way to flexibility, resilience, employee satisfaction and productivity.”

As demand for newer-concept office spaces eventually begins to build again, commercial office buildings with these upgrades will become the most valuable. For this reason, identifying possible investment opportunities in Class B or Class C office buildings that can be remodeled with newer workspace concepts is a solid move for the mid- to long-game.

Consider Repurposing Your Property Type

In addition to considering renovations for commercial buildings, there is another huge opportunity that you should also consider: repurposing property types. This out-of-the-box thinking could potentially turn your investment from coal into gold! For example:

Let’s say your small strip mall has turned into a ghost town. The retail businesses that once occupied the building have backed out due to COVID-19, and you lack a powerful anchor, like a grocery store. Instead of sitting on the property and waiting for the economy to empower retail once more, consider repurposing the property into multifamily housing or a mixed-use property! Most retail centers meet the requirements for multifamily housing since they already include parking and plumbing – so why not just build them up and cash in on a property type that has a more stable immediate future?

Another property type that is facing major challenges in the COVID economy is the hospitality/hotel property. Due to its features, including multiple rooms, wheelchair accessibility, and amenities, there is a huge opportunity to repurpose this property type into another special-use property, such as senior housing.

Although the repurposing of property isn’t usually an investor’s first instinct when facing challenges, with this economy’s uncertain future, a pivot might truly pay off! During this time, it’s important to think outside the box and identify creative strategic opportunities, like these and like those in our next tip about discovering housing trends…

Identify New Opportunities in Up-and-Coming Communities

Downtown and even suburban areas that were experiencing revitalization before the pandemic are likely to be under pressure in the current state of the economy. If there is reason to believe that progress in these communities will continue once more, then it might be a good time to snatch up these commercial properties that are in peril and hold onto them for a large return in the future.

In addition, taking a closer look at infrastructure improvements and expansion can be a precursor to a new up-and-coming community. Given that more and more people are leaving large cities to work remotely, they’ll be looking to settle into more affordable suburban areas. For this reason, identifying new highway exits and main roads can help point you in the direction of smart commercial real estate investments to make, which includes investing in our next topic: land.

Invest in Land

Purchasing land, as a long-term investment strategy, is a great move to make in the market’s current state. When the economy picks back up, you can decide to either sell or develop the land, which will help you come out profitable in either circumstance.

In addition to larger plots of land, you may also want to consider smaller parcels in downtown and suburban areas that were experiencing a revival before the pandemic. As the economy begins to recover and development picks back up, these parcels have the potential to deliver a considerable profit if they are necessary to a commercial building or city center’s expansion.

Invest in Growing E-Commerce with Industrial Properties

It used to be that office and retail buildings were considered more attractive than industrial properties – but the pandemic has changed that belief. As people move out of offices and into their work-from-home offices, and as many small businesses shut down from a lack of CARES Act funding, industrial production rages on.

In fact, throughout the pandemic, interest in industrial properties has continued to increase – and it is showing no signs of slowing down. This is because consumers haven’t stopping buying goods, but rather, they have changed how they buy goods. With e-commerce booming, production is expected to ramp up, and more industrial space will be needed.

Even beyond the pandemic, industrial properties are expected to increase in value. As the U.S. continues to repair its trade wars overseas, more and more companies will move to create full production here in the states. That is another reason why now, more than ever, is the golden time to invest in industrial commercial real estate.

Consider REITs

Similar to a mutual fund, REITs (Real Estate Investment Trusts) fund, own, and even operate portfolios of commercial real estate. These portfolios behave similarly to stocks, and thus allow investors like you to invest and earn dividends without having to fund, own, or operate the properties yourself. REITs are known for offering strong, steady annual dividends and are fairly easy to buy or sell.

Investing in REITs during the pandemic could be a great opportunity for someone who wants to dabble in commercial real estate without the responsibility of managing a property. Plus, when the economy picks back up, those shares are likely to pay out nicely.

Although everything continues to change and evolve as certain states pick back up or shut down, these six tips should prove to be generally helpful in almost all markets. As with any commercial real estate investment, make sure to deeply research all opportunities and speak to financial advisors, like the commercial loan specialists at ComCapFL. Whether you have been investing for decades or are itching to get in the game, adding an additional seasoned perspective from our experts may open up additional investment opportunities that you might have not imagined possible!

Blog, Commercial Loan News

What to Know Before You Apply for a Commercial Loan

The process of commercial loan borrowing is intricate, and costs a lot of time and money. Before applying for a loan, consider these tips to better prepare yourself for what’s to come!

Tip #1: There are a multitude of rates and options — and they’re not always available at your corner bank.

Unlike with residential mortgages (which deal with only ONE property type), there isn’t “one rate” for all commercial loans. Even though some agency loans such as Freddie Mac and SBA publish their rates, those rates are still subject to adjustments.

Commercial loan rates and terms are dependent on multiple factors, which assess the risk of the investment. With that being said, it is very important to look at each and every factor when considering a loan. While a rate might look good, there could be another element of the loan that doesn’t fit in with the rest of your strategy – making a big difference in the cost of your money. Be sure to carefully consider all of the elements, not just the rate, and make sure they’re a fit with your overall investment strategy.

Be aware, most corner banks are getting more conservative: their fixed periods are going down, average amortization terms are now 20 years (versus 25 years in the recent past), and LTV’s are going down, all to cover their now higher risk of lending. Since there are so many types of commercial loans available, it’s best to begin the process by working with a commercial loan specialist to fully explore the wide breadth of rates and options available for your unique loan requirements.

Tip #2: You’ll be required to produce financials and tax returns – have them ready.

For most commercial loans, you’ll need to provide two to three years of business and personal tax returns, depending on the loan type you’re pursuing.

In addition, make sure your personal financial statement is current. If you haven’t updated yours in a while, now is the time! Make sure to include the current value of any properties you own (make sure they’re accurate; don’t inflate!); and check the recent balances on any loans or debts, including car payments and credit cards. These values will determine your net worth and liquidity (assets – liabilities = net worth). In addition, check the balance of your bank accounts, broker accounts, and any cash equivalents. This is one of the key considerations in securing your commercial loan!

Tip #3: Know Your FICO Score.

Before applying for a commercial loan, make sure to review your credit and FICO score and address any errors or discrepancies proactively.

Please note: just because you have a credit challenge, it doesn’t necessarily mean you can’t get a commercial loan. It will, however, limit your options and add time to the process – so be prepared. Sharing any inaccurate information with your commercial loan specialist beforehand will actually serve you better than withholding it until the last minute. A good commercial loan specialist will be able to advise you on how to address your credit challenges, and may be able to secure alternative loan options based on your personal credit history.

On the other hand, if you have great credit, it’s important to share that information, rejoice and share that information immediately! Having great credit is a huge asset in qualifying for the best loan options.

Tip #4: Be prepared for associated loan expenses.

Borrowing money requires some level of personal investment, so make sure you are prepared for these costs.

For example, a conventional loan may require you to put down more cash than a business loan. Or, say a property needs improvements – you should have the cash budgeted to pay for an estimate to provide to the lender if you intend on using the funds to make those improvements.

Bottom line, have enough cash seasoned and available, to both assist you with the closing costs and to support unexpected expenses that may arise. (“Seasoned” = money can’t magically appear in your account in the last week before your closing. PLAN AHEAD!)

Bonus tip: Another benefit of working with a commercial loan specialist is that they’re able to assist you in projecting the total costs required – including down payment, closing costs and reserves. A specialist will also advocate for the you during the entire loan process, rather than simply matching the you to a loan and leaving you to fend for yourself.

Tip #5: Average closing times for commercial loans vary WIDELY, depending on the loan – know yours.

Some people just assume that they can run down to the bank and get a loan, just like when buying a house. They rush into signing contracts and putting down hard money deposits, only to realize that they can’t close their commercial loan in time. Don’t wait until your deposits have gone hard and are non-refundable to find out that you didn’t give yourself enough time to close! Then, you’ll be at risk of losing the contract on the property and losing your own deposit money. What a nightmare!

Here are examples of some average closing times to consider: Conventional loans typically close in 30 to 45 days. Meanwhile, an SBA 7a loan averages around 45 to 60 days to close, and an SBA 504 loan averages 60 to 90 days.

These are general estimates that can be affected by weeks or months, depending on how complex the loan is (like a business with multiple owners or multiple requirements), and how large the loan amount is (requires more due diligence), and even what time of year it is.

Tip #6: If you plan on securing a loan in the final quarter of the year, get it in before the end of October!

There are many third parties involved in a loan contract – appraisers, insurance agencies, CPAs, environmental scientists, title companies – and they will all start taking time off for the holidays come November. If you hope to closing your loan in the final quarter of the year, make sure to submit your loan application and all of your documents before the end of October to avoid complications due to holiday delays.

Bonus Tip: In addition to the holidays, loans can also experience delays during Spring Break or Easter, as well as summer vacation. Make sure to be proactive in submitting your loan

In conclusion…

The more prepared you are for your loan application, the easier it will be throughout the process for both you and the lender. However, even if you’re prepared to the best of your ability, situations and kinks may arise that you are unprepared to handle alone. That is why it is highly recommended that you begin the process with a commercial loan specialist, like the professionals at Commercial Capital Ltd., FL. From application to close, the commercial loan specialists at ComCapFL will put their years of experience to work for you, addressing any situations that may arise, to make sure you arrive successfully at a closing.

Getting a commercial loan is a huge undertaking. Be prepared. Have the right commercial loan specialist as a partner in the process and save yourself both time and headache!

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