Jeff 's Blog

Commercial Mortgage Loan - 2009

Jeff Rauth (Commercial Finance Advisors) — Thu, 16 Jul 2009 22:09:04 -0500

Commercial mortgage loan business is really going through some tough times as of late and we are starting to feel some painful slow downs, especially in the conventional bank sector - on both owner occ and investment.

Bottomline though, commercial re investors are getting the worst of it. With very few banks doing anything at all. For example, we have several, very strong deals in process, with goods trends, good tenants, less than 50% ltv, 90% occpancy and even a few where the borrower has more cash than the loan request, which we have been unable to place these deals.

Government backed loans are the most viable area, and in contrast are experiancing an increase in approvals and fundings. USDA's B & I program, as well as SBA business loans continue to fund. These however are tricky programs and expert eadvice should be sought.

Closed SBA 7a Loan, In Atlanta, Georgia

Jeff Rauth (Commercial Finance Advisors) — Mon, 08 Jun 2009 17:13:25 -0500

Commercial Finance Advisors is pleased to announce the recent funding of an SBA 7a loan in Atlanta, Georgia in the suburban community of Buford. The project was a combination of a commercial refinance, construction, equipment and working capital for the borrower, who is a doctor.

"There was a couple of interesting components of the loan. One was that the borrower had already closed on the request with another bank, which after funding part of the loan backed out... It was a construction loan. This put the borrower in a terrible position and to say that he was frustrated and very concerned is an understatement. He had to still make monthly payments on the debt even though the bank did not hold up their end of the bargain." Comments Jeff Rauth, President.

More info on SBA Business Loans

"The first bank essentially just ran out of money. They are lucky (the first bank) we were able to get the new SBA 7a loan closed, otherwise the borrower would have had a very good lawsuit and more frustration to motivate him to pursue suing them for damages. Unfortunately we are seeing more loan requests like this cross our desk."

SBA 7a loans are designed to help small business owners refinance or purchase new building for their business. There are a couple of very strong benefits to the program. One is that they can go up to 85% loan to value, which is a huge advantage as property values continue to decline in most markets in the nation. Another is that the underwriting standards for the SBA 7a loan can be very flexible, which allows loans that don't fit conventional standards to still get funded.

One of the other major benefits to the program is the ability to roll in many different types of collateral, such as real estate, equipment, and good will. Borrowers are still able to get working capital and to consolidate high interest business credit cards as well.

However, not all SBA 7a lenders are the same. Just like a typical commercial real estate loan, borrowers need to know who the aggressive lenders are, and how to submit loans correctly to get them done.

Commercial Finance Advisors, Inc works with borrowers nationwide, on commercial real estate loans from $400,000 - $5,000,000. Most of their clients have dealt with many local banks and are "feed up" with getting the run around and now need to get their loan closed.

Commercial Property Loans - In This Environment

Jeff Rauth (Commercial Finance Advisors) — Fri, 05 Jun 2009 12:36:48 -0500

Funding a commercial property loans in today's market is no easy task. Banks either are scared to lend or worse, face their own liquidity issues. Many borrowers are running around, scrabbling for options, often baffled by what their local banks tell them. Loan to values requirements have dropped, borrowers cash flow and liquidity requirements are up.

We hear borrowers often make comments such as. "I've been with my existing bank for 30 years, never missed a payment... now they will barely take my call." Or "my local banks are offering me decent rates but the amortization schedules are capped at 15 years. This will strangle my cash flow, and they don't seem to get it." This is a frustrating time for many business owners and finding palatable commercial loans is often difficult.

Borrowers need to break away from the limitations that their local banks provide. There still are sources that have the capital and appetite to fund commercial property loans. In fact, some aggressive and well capitalized banks/lenders are taking advantage of these times and "swallowing" large chunks of their competitor's market share.

One of the best commercial real estate loan programs out there today, is the government backed variety. On refinances they can go as high as 85% loan to value, which is such a critical point, as property values continue to decline. Many borrowers that go with their local banks have a very unpleasant surprise when the $3,500 appraisal report comes in with a property value 20% lower than what was expected. The borrower has a dead deal, and 2 months of wasted time to show for his efforts. By being able to go up to 85%, borrowers hedge their bets on this issue.

Another major benefit of the government backed programs is a reliability of funding. This is one of those subjective issues, that's impossible to predict. For example, you may go with a local bank and your commercial property loan request may fit all of their guidelines, yet the bank declines the file. Why? They may give you some random reason that makes no sense at all. The committee may just not like the industry you're in, your personal history or they may just have a bad feeling about the deal. Due to the economy this is happening more and more.

With a government guarantee, loans that fit the guidelines close. The level of subjectivity is much less. If it fit's, it funds.

Jeff Rauth is President of Commercial Finance Advisors, Inc, a national commercial mortgage firm. He specializes in Commercial Real Estate Loans between $400,000 - $5,000,000, nationwide. Most of his clients do not have the time, and need to get their loan closed. 248 885-8797 or SBA 7a Loans or Physician Loans

SBA 7a Loan, SBA 7a loans

Jeff Rauth (Commercial Finance Advisors) — Tue, 02 Jun 2009 07:45:14 -0500

The SBA 7a loan has been getting a lot of press lately, as it is one of the most viable commercial real estate loans out there, and many business owners are trying to get a better understanding of the loan program. Below are the typical questions that business owners have regarding the SBA 7a loan.

Aren't SBA lenders the same? Should I just work with a local bank?

Though the SBA has set guidelines, banks all have their own lending criteria, and what is considered a doable deal from one bank will not be to the next. Many borrowers incorrectly think that the SBA funds loans. They actually just guarantee the funding bank, that in case of borrower default, the bank will get their capital back.

So the point being, you may get 9 declines from various SBA lenders, than find one lender that really likes your request. Lending criteria/guidelines does vary. There is a very good chance that best lender for your request is not local, but maybe located on the other side of the country.

Also, some SBA 7a loans are structured in different ways. For example, 99% of banks structure SBA 7a with an adjustable rate. There are a few banks that offer the loan with a 3 to 5 year fixed rate. Some other lenders have different focuses in terms of building types. While some lenders won't even look at hotels requests, others banks focus almost exclusily on them, for example.

Will the SBA monitor my business, after the loan closes?

Actually, not at all. In fact the only time the SBA would get involved is if you default on the loan. And the SBA would work with the funding bank to remedy the loan, not the borrower. There is no need to fear a "Big Brother" element with an SBA 7a loan.

How long does the an SBA 7a Loan take to Close?

It should take approximately 60 days to close. It is very important though to seek out and work only with lenders and banks that very experienced with doing SBA 7a loans. Many banks, including huge ones, have never done a single SBA loan, so borrowers should be careful with this.

If the borrower works with an "approved lender" the loan gets underwritten only once and the process should take around 60 days to fund. This timing is normal, relative to all other commercial mortgages. If they work with un unapproved SBA lender, the loan will have to be underwritten twice - once by the bank, than by the SBA.

I've heard the SBA paperwork is intense and require a lot of special forms?

Today's SBA loans require about the same amount of paperwork and effort as a typical commercial mortgage.

SBA business loans are one of the most reliable sources of capital in today's credit crisis for small business owners. The programs boasts the highest level of financing in the business and is ideal to roll in working capital, business debt, and equipment loans. It might just be the best program out there for your request.

SBA Business Loans, The Basics

Jeff Rauth (Commercial Finance Advisors) — Mon, 01 Jun 2009 18:05:27 -0500

SBA business loans are one of the most popular commercial real estate loans in the nation, and for good reason. They boast flexible underwriting, high leverage and the ability to roll real estate debt, equipment, debt consolidation as well as working capital debt into one loan. They have been created specifically for the needs of small business owners.

Many people are under the impression that the SBA funds loans, actually banks and lenders fund the loans and the SBA guarantees the debt repayment to the lenders. I.e. if the borrower defaults on the loan, the SBA will step in and pay the bank back for any lost capital. Because the banks get this guarantee from the government, they are that much more willing to lend and to do more risky loans.

Again, banks actually lend the capital, therefore many of the underwriting restrictions are set by the bank, not the SBA. In fact, most SBA business loans that are declined, are declined by the funding bank not the Small Business Administration guidelines.

One of the major benefits to the SBA business loan programs are the high level of financing offered. For example, 90% on purchases and 85% on refinances. Conventional commercial financing in contrast is capped at 60-65% loan to value. This can be a huge difference for a small business owner that needs to keep as much cash on hands as possible.

SBA Business Loan Guidelines

As far as the SBA guidelines are concerned, the borrower must fit their restrictions as well. Repayment ability from the cash flow of the business is vital. Typically borrowers will have to show enough net income off of their last 2 years of tax returns to cover the proposed loans payments. So again, cash flow is critical. In addition, good character, meaning decent credit scores, and management experience are important. The collateral's condition and value are also important and reviewed. The borrowers "equity contribution" in the case of purchases is also considered. The SBA also requires a personal guarantee from all borrowers with a 20% or more ownership.

The SBA guidelines have been written to be as broad as possible, though a few more restrictions include that the business must be for-profit, and not already have the internal resources to do the loan, are required to get the requested financing.

SBA Business Loan

A major misconception with borrowers is that all SBA business loans and lenders are basically the same, i.e. "if we get declined from one source, we must not be eligible." This is not the case, as mentioned above most loans get declined from banks, not the SBA. So it pays to keep looking.

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He specializes in SBA 7a Loans nationwide.

Commercial Mortgage Loans, The Main Solution in This Crisis

Jeff Rauth (Commercial Finance Advisors) — Fri, 29 May 2009 08:57:01 -0500

Business owners that are looking for viable commercial mortgage loans should look hard at SBA financing. These loans continue to close and relative to other sources of capital, like conventional bank loans, SBA financing is much healthier. In addition, SBA loans have many advantages over conventional financing, which we discuss below.

But first, let me address a few common concerns with SBA financing. The SBA has a bad reputation with many, as being overly cumbersome. And granted, if you work with the wrong bank, you will likely double the processing time to get the loan done. Many banks that are not fully focused on SBA loans, will have to have their loans underwritten twice, once by the bank, than by the SBA... If you go with the right source, your loan will only have to be underwritten once.

The other common concern is that people have a misperception that if one bank declines the file that the loan request must not fit the SBA guidelines and is not eligible. People need to keep in mind that banks finance deals, the SBA only guarantees the debt for the bank... And banks guidelines are almost always more restrictive than the SBA's. If you have been declined, keep looking and find out why.

Commercial Mortgage Loans Vs SBA Loans

Highest loan to value in the business. SBA loans go up to 85% financing on refinances and 90% on purchases. In addition, it is common to roll all cost of a project into a loan. For example, if you where purchasing an office building for $800,000 and needed an additional $200,000 for renovations and equipment for $200,000, you would be able to get 90% financing on the $1,000,000...

Most conventional financing would require you to put 30 - 40% down on the $800,000 purchase price and the renovation/equipment financing would be up for grabs. You would likely having to pay for those items in cash. On refinances, conventional commercial mortgage loans now rarely exceeds 60% loan to value. Again 85% with SBA vs. 60% conventional; this is the decision maker for many businesses.

25 year amortization with fixed periods ranging from 3, 5, 7, years is still available with the SBA. Conventional commercial financing is now capped at 3 -5 year fixed rates with amortization schedules rarely exceeding 15 - 20 years. These shorter amortization schedules increase monthly payments significantly and can be a serious drain on cash flow.

No balloon clauses with the SBA. SBA loans are fully-amortizing, meaning that they pay off by the end the amortization period. Most conventional loans will have a structure such as a "3 year fixed period, with a 10 year term, on 20 year amortization schedule." At the end of the 10 year term, the borrower faces a balloon. With SBA financing there's never any pending balloon that could very well put the borrower in a bad position.

Relatively low prepayment penalties with the SBA loans. On a SBA 7a loan, the pre pay is 5% in year one, 3% in year two and 1% in year three, gone thereafter. The borrower is allowed to pay down the principle by up to 25% of the balance without incurring the prepayment penalty. Compared to the typical conventional prepay at 5% for 5 years or a 5% step down, the SBA pre pay is cheap and more flexible.

None of the above really discussed the most important point of all - that SBA loan are the most viable and reliable sources of commercial mortgage loans in the business today. The credit crisis will likely to continue for another year or more. These loans are still closing while many conventional loans die while the loan is in underwriting, costing the borrower thousands of dollars and two to three months of wasted time and effort.

commercial real estate loans

SBA 7A Loans, The Best Solution

Jeff Rauth (Commercial Finance Advisors) — Thu, 14 May 2009 11:03:18 -0500

SBA 7A loans are one of the best finance solutions to business owners, in the market today. There are two primary reasons for this - value and viability.

As commercial real estate values continue to decline the SBA 7A loan offers the highest financing available in the business, at 85%. Conventional bank loans in contrasts are normally capped at 65% loan to value.

Say you bought an office building 5 years ago for $1,000,000. You put 30% down and started off with a $700,000 loan amount. Now 5 years later your existing loan is ballooning/adjusting and you need to investigate what options are out there.

However, you quickly learn that your property has declined in value to $800,000, and your existing balance has only been paid down to $650,000. Your existing loan to value is 81%... Your existing bank wants you to pay down the balance to bring it to 65% and no other conventional lenders will consider your request. However, the SBA 7A loan will go to 85% loan to value, so this could be a business life saving deal.

Because the SBA 7A loans are backed, i.e. guaranteed by the government, they are the most reliable loans, in terms of closing in the business today. Many banks for example, are taking loans that fit their conventional guidelines and are pushing the borrowers to take an SBA loan because the bank wants the guarantee.

A year ago, this was not the case. The SBA guarantee comes with additional expense for the bank and much more paperwork/reporting requirements for them as well. Many banks wanted nothing to do with the SBA.

Borrowers need to keep in mind that the SBA does not lend money. They guarantee the banks they do lend. There is a wide level of flexibility between one bank to another, in terms of what is considered a fundable loan.

Not all SBA lenders are the same! Some are very conservative, others are still aggressive. Being declined by one does not mean that you are ineligible for an SBA 7a Loan. The key is knowing which sources are still funding loans.

SBA 7 (a) Loans - They're Expensive

Jeff Rauth (Commercial Finance Advisors) — Wed, 13 May 2009 09:24:21 -0500

Due to the current credit crisis many borrower are considering SBA 7(a) loans for the first time and are surprised on how the third party fees add up. And this is without the notorious SBA guarantee fees, as they have been temporally waived via President Obama's Stimulus Package. The SBA guarantee fee is normally 2.75% of 75% of the loan amount... This is temporally gone.

Borrowers that compare a conventional commercial mortgage to the SBA 7(a) loan will find many additional fees that they may have never heard of. For example, packaging fees, though not required are typically charged by all banks. Sometimes this service is hired out to a third party, other times putting together the file is handled by the bank loan officer. The typical packaging fee is $2,000 - $5,000, depending on the complexity and size of the loan request.

Attorney review fee is also a little known fee that is charged on almost all SBA 7a loans. This fee is on top of title fees. The bank or lender is essentially hiring a third party attorney to review the closing docs, to protect their interests. It normally ranges between $3,000 - $5,000.

Other more typical fee such as title, appraisal and environmental will normally be on the high side. Most banks that do SBA loans, will use the third party vendors with the best credentials and therefore demand the highest price. For example a typical appraisal for an SBA loan will cost $3,500 - even if the loan request is small at say $300,000.

Despite the high fees that are associated with SBA loans, they are still very popular - why? A couple of reasons. One, they provide the highest level of leverage in the industry. As property value decline, this increase in financing (up to 85% on refinances) is often a business life saver. Two, they are viable and are actively funding. This is a huge point and should not be blown off. It's estimated that 80% of conventional lenders have stopped funding loans. The 20% that are lending are only considering the very best loan requests.

Three, besides the fees, these can be really good loan programs with solid terms. Like low rates (currently in the 5%'s), long amortization periods (normally 25 years) and flexible underwriting standards. Because of these reasons, many business owners tolerate the fees and go forward with the loan.

Jeff Rauth is President of Commercial Finance Advisors, Inc. They close commercial mortgages throughout the US from $400,000 - $10,000,000. 248 885-8797. Commercial Real Estate loans

Commercial Real Estate Loans - Still Closing!

Jeff Rauth (Commercial Finance Advisors) — Sat, 09 May 2009 12:02:46 -0500

By far the most positive aspect of commercial real estate financing is now SBA loans. Via the Obama Stimulus Package, SBA loan are still funding and the banks that are still in the market, are pushing all of their customers to go this route.

For banks, the Stimulus Package increased the guaranteed portion of the SBA 7a loan from 75% to 90%. Though many bankers will tell you this doesn't mean that much, because the government can get out of following through on the guarantee, having some type of backing is a lot better than none at all.

For borrowers the main benefit is having a closed loan. A lot of borrowers don't realize the significance of this point. Others include the widely published reduced fees (for example on the SBA 7a program, the normal fee of 2.75% has been temporally eliminated ). Other major benefits include 90% financing and 25 year amortization schedules.

Conventional commercial financing continues to tighten, whether for owner occupied or investment properties (non multifamily). What we are seeing actually close, on the conventional side is loans below 60% loan to value, with very strong borrowers. Most banks now want to see strong secondary sources of income and high levels of post close reserves. Though there's no set number/ratio a lot of banks want to see 30% in liquidity, compared to the proposed loan amount... Some are establishing it as 12 months of mortgage payments in reserves or more.

Another issue on conventional financing that keeps appearing, for borrowers with investment properties, is lease term. Banks now want to see a minimum of 5 years left on leases. Just a few months ago, there was still flexibility with this, now it seems to be gone.

More info on conventional loans: http://www.cfa-commercial.com/bank-loan.html

SBA 504 Loan Showing Real Signs of Recovery

Jeff Rauth (Commercial Finance Advisors) — Thu, 09 Apr 2009 08:55:56 -0500

The areas of California, Nevada and Arizona boasted a whopping 68% increase in SBA 504 loan approvals from February to March. Many leading experts are viewing this as a real sign that the markets are coming back, normalizing, and that the credit freeze may finally be thawing.

As far as a dollar amount, the approval increased in these three states from roughly $48 million in February to $77 million in March. The bulk of the increase occurred in California.

Clearly the stimulus package is working. And whether or not it is due to the reduction in fees, or just the increase in public awareness of the program and the increase in confidence that people have regarding the SBA 504 program is not clear. The secondary market for SBA 504 loans has remained strong throughout the credit crisis, so the increase is probably more a result of the public's psychology, i.e. the belief that these loans are viable and it would not be a waste of time to go through the process.

The SBA has had a pretty bad reputation for the efficiency of their program, which is mostly unwarranted. Also, many potential borrowers are so beat up mentally that they just don't want to "bother", as they assume they will not qualify and or the program will not materialize and it will be a major waste of time to attempt to purchase a commercial property. Also, many borrowers assume that if they have been turned down from an "SBA bank" that they don't qualify for the program. Its critical to keep in mind that the SBA does not lend money. Most of the time when a borrower is denied its from the banks own standards - not the SBA's.

Some SBA lenders are much more aggressive than commercial mortgage lenders. For example, there still are SBA lenders that will lend to borrowers that have credit scores in the 500's, low levels of cash flow, etc. Not all SBA lenders are created the same!

Small business owners unaware of the details of the SBA-504 are often very surprised by the strength of it. For example 90% financing is common. Compare that to the typical 65- 70% financing on conventional commercial loans. Also, most local/regional banks are now offering a max 3 year fixed rate, while the SBA 504 program offers fixed rates from 5 - 20 years. Rates are very competitive right now with the CDC piece at 5.2%... Fixed for 20 years.

It is a very worthy program and borrowers that are considering purchasing a new building or equipment should look into the SBA 504 program intensely.

Healthy Banks, Viable Commercial Mortgages

Jeff Rauth (Commercial Finance Advisors) — Wed, 08 Apr 2009 08:52:08 -0500

Despite all of the news regarding failing banks, and a secondary market that has collapsed, there still is viable commercial mortgage loans and healthy banks that continue to lend on commercial real estate. And, for the lenders and banks that are still in good positions, they are offering some pretty interesting loan programs and some of the lowest rates seen in a long time.

One of the keys here for borrowers to realize is that not all banks have shut their doors. You just need to find the healthy sources. And some of the most aggressively lending institutions aren't banks, but rather hedge funds, insurance companies and foreign banks (among other commercial mortgage lenders). These sources are not as tied to the US commercial secondary market, like a lot of the typical local and regional banks are.

We have many borrowers come to us, after being turned down by a few of their local banks , with their attitude of what is wrong with my loan request and or "are any banks still in business?" Again, the answer is finding the sources that are still lending.

One of the most important components of whether or not a commercial bank and or other types of lender is in a real position to fund your commercial mortgage is if they have the ability to "portfolio" your loan request. What this means is that they will fund your loan and hold onto the debt long term, rather than selling it off onto the secondary market. The tricky thing here is that all banks have the ability to do this, though they may not have enough capital and or desire to do this.

You may want to ask your bank what they are planning on doing with your loan. I.e. sell it or hold onto it. If they are going to sell it off immediately, that could be the first sign of issues to come. We have heard of some banks doing a full under write, than not funding the loan until they have the loan actual pre sold, which in this market, at a minimum will cause delays and worse case will result in an unfunded loan request.

There are healthy banks still out there and there are banks that continue to lend - you just need to find them or work with someone that already knows how they are.

Alternative Sources Commercial Mortgages

Jeff Rauth (Commercial Finance Advisors) — Thu, 26 Mar 2009 11:52:30 -0500

Borrowers need to realize that there are other sources of capital besides their local bank. Life insurance companies, government backed programs, non bank lenders and foreign banks/lenders can provide some interesting commercial mortgages.

For example, typical bank commercial mortgages are now limited to 5 year fixed rates with amortization schedules at 15 - 20 years. On special purpose properties such as hotels, restaurant, most are now only offering adjustable rates. And of course we're talking about the 10- 20% of the banks that are actually still lending. The rest are either facing their own cash flow, capital issues or are just waiting it out on the sidelines.

Some of the non bank options boast fixed periods up to 10 years, with amortization schedules as long as 30 years... This added security via the long term fixed rates and increased cash flow, by spreading out the amortization schedule to 25 - 30 years, often comes out to an approximate 20% savings in payment. In addition, most of these sources will not go after side business such as checking or saving deposits.

There are down sides to many of these programs however, to be fair. Rates are typically 50 to 100 basis points higher (.5% - 1%) than typical banks loan. Prepayment penalties are often, more expensive as well, though negotiable. For many, however the longer fixed periods and lower monthly payments are still very attractive and compel borrowers to seek this route of financing.

Borrowers should seek out all available option to them. They maybe pleasantly surprised to find some great commercial mortgages that they didn't think where out there.

Jeff Rauth is President of Commercial Finance Advisors, Inc. They close commercial mortgages throughout the US from $400,000 plus. commercial bank loans, apartment loan

SBA Loans, You Know Most Lenders Aren't Funding, But Why?

Jeff Rauth (Commercial Finance Advisors) — Tue, 24 Mar 2009 08:53:50 -0500

SBA loans and in particular, SBA 7a loans are down substantially year to date, by 57% according to the Small Business Association. We all know the bad news, but what are the issues specifically? Frozen secondary market and little known fees for the lenders.

The main problem for SBA 7a loans currently(but not sba 504 loans), is that the commercial secondary market for these types of loans are completely frozen and has been for over 6 months. What this means is that investors do not want to buy this debt. Without investors buying loans of the secondary market, banks do not have the ability to "recycle" their capital. Most modern banks are not set up to hold onto to debt long term, like it was done in the past.

Under a healthy market, banks are able to originate, fund and sell off their SBA loans for a substantial profit. Most importantly, with this system they not only make a profit but they get their capital back, so that they can go out and fund another loan. In addition, many banks have miss timed the markets and have a substantial amount of SBA loans stuck on their balance sheets, which have further slowed or stopped their lending.

One of the other major issues here, which is really not well known to the public, is that the fees for lenders, charged by the SBA, to the funding banks, are expensive. With premiums dropping substantially for banks, the SBA fees have become that much more restricting. Banks and lenders have asked and where hoping for a reduction with the Stimulus Package but did not get one. Due to this issue coupled with the additional paperwork for banks to work with the SBA many have simply pulled out, as it not being profitable enough to justify the work.

The solution to both of these issues could very well be what Obama already put in to action. With $50 billion being deployed at the end of March, for the government to buy commercial debt frozen on the secondary market, many experts believe that this is the best move available and that it should work. The analogy of the market being frozen is very fitting. With the bulk of the ice being broken (bought) the river should begin to flow once again.

Commercial Bank Loans - In Credit Crisis

Jeff Rauth (Commercial Finance Advisors) — Thu, 12 Mar 2009 22:48:33 -0500

Commercial bank loans, aka conventional loans, though "beat up" are still available. Yes, pretty much every component of underwriting has tightened, i.e. loan to value, debt coverage ratio, global cash flow, borrower experience, etc but many decent (not perfect) commercial real estate loan requests can qualify and enjoy the benefits. Like low, long term fixed rates, longer amortization schedules and the lowest fees in the business.

First of all, what do we mean by commercial bank loans? We're referring to conventional commercial loans that are funded by banks and are often held onto by the bank. Further these loans are not backed by any type of governmental support, like B and I or SBA loans are. So, because the banks fund and often hold onto the debt, they want to make sure they are decent deals.

We get a lot of people that contact us with the mind set, "assuming you can't help me, but thought I'd call anyway." The key areas that borrowers need to keep in mind is that banks are mostly concerned with the cash flow of their business and what the borrower looks like on a personal cash flow level. This is referred to as Global Income.

One solution for many borrowers, that have not already filed their tax returns, is to simply tell their accounts to show as much income as possible. This often can be the cure that borrowers need to better qualify for these superior loans.

Also, borrowers need to do a "180" on their attitude towards banks. Meaning, many banks are now in worse condition than many borrowers. They have cash flow and liquidity issues themselves. In fact, 80% of all commercial banks are pretty much on the sidelines. So just because you get turned down cold by a few banks does NOT mean you can't find one that is healthy and has a real appetite for your type of loan request.

As far as the benefits, borrowers can currently expect low rates in the 6%'s, with amortization schedules from 25 to 30 years. Also, fixed rates on conventional loans can still go up to 10 years, though 7 and 5 years is more common. Further when compared to loans backed by the SBA or USDA loans that have fees of 2 -3% these are very inexpensive with normally only 1%.

Though commercial bank loans many have lower loan to value requirements, and increased general underwriting standards they are well worth the effort.

SBA Commercial Loans - Poised For a Come Back?

Jeff Rauth (Commercial Finance Advisors) — Thu, 05 Mar 2009 12:36:46 -0600

Year to date we have seen 6 major national SBA lenders come back to the market. That is very encouraging news, despite all of the continued talk of the recession and how bad it might get. The fact that these leaders in the industry have the confidence to put both their necks on the line and capital, is the most important and significant statement of belief they could provide.

SBA commercial loans, including the 7a and the SBA 504 loan program have received a lot of press lately, both good and bad. On the positive side, SBA loans have been one of the most durable programs throughout the credit crisis and though down sustainably for 2008 (37%) and year to date 2009 (estimated at 50% though that is not confirmed) - SBA loans are still funding. We know this because we still are closing SBA loans.

Liken this to the CMBS market that is all but dead and was down 98% in 2008, compared to 2007... 98%... This is according to the Commercial Mortgage Bankers Association, the most reputable association in our industry.

Many people are still disappointed by the SBA performance though. After all the SBA was created to help small business through difficult times and to get loans that they would not have otherwise been qualified for.

Borrowers need to keep in mind that the SBA does not fund loans. Rather banks/lenders fund SBA loans and they provide a guarantee to the funding bank that if the borrower defaults, the Small Business Association will pay the bank back and make them whole. However, some backs have had a difficult time getting their capital back from the SBA... Which has caused fear in upper bank management and have forced banks to further scrutinize loan requests.

Despite these concerns and the media (which continue to pound fear pound into our society), many leading experts are hopeful that we have bottomed out, and they are backing their words, with the most valuable form of confidence - their capital.

Commercial Mortgage Loans - Interesting Developments

Jeff Rauth (Commercial Finance Advisors) — Wed, 04 Mar 2009 18:21:35 -0600

With change comes opportunity. We are seeing many, very interesting developments with commercial mortgage loans. One happens to be banks offering to reduce balances owed and waive any prepayment penalties in an effort to entice strong borrowers to refinance their commercial debt.

And no, we are not referring to borrowers that are late, have negative trends, etc. We are talking about stable commercial mortgage loans, that the existing bank needs out of, for their own internal issues. I.e. the bank needs liquidity to survive. They have their own capital problems and, apparently freeing up commercial loans is a potential solution.

Commercial Mortgage Loans

For example, a hotel client of ours called this week. They owe $3.5 million with a property value at approximately $5.2 million. Their occupancy is great at 84% year end and they have strong cash flow which easily services the existing debt. Their existing bank has offered to waive the existing 3% prepayment penalty and reduce their balance by $300,000 to get them to "go away". The bank called them out of the blue.

Fluke???

Another borrower called us this week as well that happens to own 14 Kentucky Fried Chickens restaurants. They owe their existing bank over $7 million and where offered a reduction of $3,000,000 dollars... Again the borrower is strong, cash flowing, etc. These by the way are not the same banks.

Borrowers that are in good financial position may want to make a few phone calls to see if they can save a substantially amount of money. Borrowers should keep in mind that just because your existing bank maybe in trouble doesn't mean that you can't find a healthy bank, as we and some of our competition continue to grind out commercial mortgage loans.

The old saying, "got lemons, make lemonade" comes to mind.

Commercial Mortgages - Some Good News

Jeff Rauth (Commercial Finance Advisors) — Sun, 01 Mar 2009 11:10:39 -0600

Hi All,

Just thought you'd like to hear some GOOD NEWS regarding commercial mortgage loans. 2 major national SBA lender came back into the market last week...

This coupled with the Obama stimulus package (with regards to the financing) is the best news we've had in months... Perhaps the fist signs of recovery???

Multifamily Mortgage, Now

Jeff Rauth (Commercial Finance Advisors) — Sun, 08 Feb 2009 17:34:00 -0600

Multifamily mortgages have faired relatively well compared to other commercial mortgage loans in the current credit crisis. The reason is the historic stability of this asset class. Borrowers can still expect some of the highest levels of financing, the longest amortization schedules and lowest fixed rates in the entire commercial business today.

As fair as loan to values, apartment loans are still going up to 80% on purchases and 75% LTV on refinances. Compare this to all other investment property loans that are now restricted to 60 - 65% loan to value. The main reason for this high level of leverage, is the government support via Freddie Mac and Fannie Mae. These institutions buy the apartment loan debt from banks and lenders that fund them - so the increased risk, due to the high levels of leverage are passed onto the government and not carried by the funding banks.

Most conventional commercial property loans is capped at 20 year amortization schedules on building types besides multifamily. It is common to get 30 year financing and a few programs go to 35 and even 40 years on multifamily mortgage. These longer amortization schedules reduce monthly payments, which have an interesting impact on the debt coverage ratio, increasing the amount of debt the property can support. Multifamily mortgage Debt coverage ratios are normally set at a relatively low 1.2. Some banks have raised this to a 1.25 due the credit crisis, but compared to the 1.3 that many property types receive this is still aggressive.

Interest rates have been very unpredictable during the last year. Margins have jumped from as low as 150 basis points, before the credit crisis to 350 over the treasuries. Things seem to have stabilized more on this regard and we are currently seeing rates most in the upper 5%'s to low 6%'s on most multi family loans between $400,000 - $5,000,000.

All in all, underwriting standards have tightened within the multifamily arena, but it remains one of the most liquid sectors of the business. Knowing which banks and lenders are still actively funding loan requests and which offer the lowest rates/best terms remains the key in the market.

Hotel Loans

Jeff Rauth (Commercial Finance Advisors) — Sun, 08 Feb 2009 17:30:06 -0600

Hotel loans and hotel financing has become much more limited in the last six months, but there still are options out there. Here are a few things to consider on increasing your chances of getting your hotel loan closed.

First of all, probably 60% maybe 80% of the commercial lenders and banks that where offering hotel financing just a year ago, are now either out of business or are no longer accepting new applications. The reasons for this are many, from the banks having their own internal issues to not being able to sell the debt off onto the commercial secondary markets, etc. Bottom line, you're reduced to only the banks/lenders that are still standing. It is critical to deal with these banks, and to get a better understanding of what they expect from you to get your hotel loan funded.

Hotel Loans Experience

Experience has always been really important with hotel loans, now it is becoming much more important. Two years of practical, onsite experience is the minimum. Lenders are looking at this more and more, and two years is many times not enough. As a potential solution for those that don't meet this, is you can sometimes hire a third party hotel management company on a one to two year contract. Not all banks will accept this, a few will.

Another potential solution is to bring on a partner that meets this requirement. Obviously this is a complicated solution but can be a real home run from a financing perspective. Perhaps the potential partner has a higher net worth, liquidity, etc as well, so he'll help with the entire loan request, not just with experience. The interesting thing is that with the real estate component of hotels, after a few years you can often refinance the debt a pay the partner off with the proceeds - so it can be a relatively clean buyout.

Hotel Financing - Stability

It is much easier to get a stabilized hotel financed than a renovation type deal. Perhaps the up side won't be as attractive, but again from a financing perspective you will have a much better chance of getting the loan closed. Ideally what lenders want to see is two years of stable occupancy and or increasing trends and net income that can currently debt service at 1.3 to 1.35 (or more).

Interestingly, we have seen some turn around type hotels deals with purchase price low enough to meet the 1.35 DCR mentioned above. So you might be able to get that reduced price with still enough existing net income to service all of the expenses, proposed debt and satisfy the funding bank.

Hotel Loans, All is Not Lost

Jeff Rauth (Commercial Finance Advisors) — Fri, 06 Feb 2009 22:24:27 -0600

Hotel Loans Experience

Hotel Financing - Stability

Apartment Loans Our New Website

Jeff Rauth (Commercial Finance Advisors) — Wed, 04 Feb 2009 20:40:32 -0600

Hey There,

Check out our new site regarding apartment loans at: http://www.apartment-loan.biz

Apartment Financing

Jeff Rauth (Commercial Finance Advisors) — Wed, 04 Feb 2009 20:37:22 -0600

Apartment financingis still viable, despite the credit crisis. For those that already own an apartment building and have a loan that will adjust/balloon in a few years you should give some thought to refinanceing that debt now with a 7 - 10 year fixed program, as rates will likely begin to increase a few months after we begin to recover as a nation.

We handle apartment financing from $400,000 - $10,000,000 in all 50 states. And have excellent programs.

For those that are looking to buy a commercial investment property you should really look at multi family as the financing is still available and cap rates have risen nicely pretty much across the board.

Check us out at: commercial real estate loans

All About Apartment Financing

Jeff Rauth (Commercial Finance Advisors) — Mon, 02 Feb 2009 11:23:58 -0600

Have questions regarding apartment financing in this credit crisis? What does it take to close an apartment loan? What are the common loan terms, rates and restrictions? CFA has created a new website devoted to apartment financing in an effort to help investors get answers to these questions.

"We go deep into apartment financing and give a lot more information about the process and underwritten guidelines than any other website we've seen on the topic. Borrowers want to know what is still funding and ways to increase their chances of getting the best loan available for their apartment transactions." Comments Jeff Rauth, President of Commercial Finance Advisors.

In terms of the general state of the commercial mortgage loan industry, apartment financing is one of the most viable, as it is often back by the government via Freddie Mac and Fannie Mae. Many sources of conventional financing for apartment loans have dried up as the funding banks either don't meet the reserve requirements established by the Federal Reserve, or they just don't want to stick there neck out, until the economy return. The government, in short creates the needed liquidity in the market.

More info on Freddie Mac apartment loan here:

Investors should now learn what is viable from a finance position, than find properties that fit those guidelines. This is backwards to what most investors are use to, as the normally find a property they like, than try to figure out how to finance it. In this market, that can be a big waste of time as you can waste months working on investment deals that will not close.

Apartment financing is still viable, however only in certain segments. Investors need to understand what is going on.

http://www.commercial-second-mortgage.com

Apartment Loans, New Resource

Jeff Rauth (Commercial Finance Advisors) — Mon, 02 Feb 2009 09:54:36 -0600

Commercial Finance Advisors has launched a new website devoted to apartment loans and investment property loans. The site discusses all aspects of apartment financing from Fannie Mae, conventional financing, to non recourse loans, and more.

"We created the site to be both an information resource for apartment owners as well as a presentation on the loans we work on." Comments President, Jeff Rauth. "Investing in many types of commercial real estate is currently not viable from a financing perspective, if you look at the wrong types of deals/building types. However, if you look at the right kind of building types you will still have strong finance options. We try to show you what is still viable within the site."

Here a link to the apartment website: http://www.apartment-loan.biz

As the banking issues persist, more and more investors are having a hard time getting their transactions closed. One of the most viable sectors in the commercial real estate investment arena, in terms of financing, is apartment loans that fit the Fannie Mae or Freddie Mac guidelines.

Investors are encouraged to look at transactions in the opposite way they normally do. Instead of first finding a solid property, and then figuring out how to finance it, they should proceed in the other direction. I.e. first get a better understanding of what type of loans lenders are still closing, than go out and find a property that matches that. This way you won't waste months of time on transaction that cannot close.

Apartment loans are still viable, but investors need to understand what the realities are and what they will need to look like on paper to meet the new, more restricting guidelines.

Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. Other sites include commercial property loans or commercial real estate loans

Real Estate Tax Appeal

Jeff Rauth (Commercial Finance Advisors) — Wed, 31 Dec 2008 14:37:49 -0600

Now is a unique time to appeal your real estate taxes. As property values continue to decline most property taxes have stayed the same or in many cases have actually gone up. It's estimated that 60% - 70% of all owners are now over assessed i.e. paying more than their fair share real estate taxes. Most of the people that do bother to appeal, win at least a partial reduction. It has been estimated by industry experts though that only 2% of property owners actually appeal. If you are considering appealing you real estate taxes, don't leave it to chance.

Real Estate Tax Appeal

Without sounding overly jaded or cynical, your city does not want to give up any more of their tax base. And owners that walk into the council meetings with a few comps and little knowledge of the process will do themselves a disfavor. The real estate tax appeal process is not overly complex or difficult, though there are intricacies of it and it is important to be prepared.

An afternoon of real research or reading should be enough to get you prepared if you are appealing residential property. Areas to focus on include picking strong comparable recent sale (comps) and learning more about the common mistake that many assessors make recording your real estate information. In addition, the process itself to appeal tends to be technical and the more you understand that aspect of it, the better.

The savings can be substantially and ongoing for owners year after year. If you knew you could save an additional $500 per year for the rest of the time you own the property, wouldn't you be willing to invest another 3 hour of research into it?

The vast majority of people do nothing and continue to pay more than their fair share of real estate tax. Be a part of the 2% that bother to appeal and save yourself and your family thousands of dollars. Don't be intimidated by the process! It is not hard nor do you have to either become a professional appraiser or invest hundreds of hours into it.

property tax reduction