Most realtors dedicate their time to the residential market and are unaware of the commercial side. As a result of focusing on the residential side, they have picked up enough of the residential mortgage programs to help their clients with making sure that their best interest is looked out for.
But when it comes to commercial lending, those realtors are often left in the dark. Well, hopefully this posting will help shed a little light to help. Traditionally, a commercial loan (if small enough) could be taken out by your local bank. The borrower was often put into some kind of ARM with an average of 2-3 years fixed. A 30 year fixed rate mortgage was virtually unheard of. This meant that a company was having to refinance roughly every 2 years, in some cases up to 5 years. Most of the programs required business plans, full documentation, full recourse, etc.
Well, I got good news for you. Your learning of commercial lending for a general knowledge is already known. Most of today's lenders have adopted a residential mortgage approach. They offer stated income, no business plans, no recourse, 30 year fixed mortgages, interest only programs, 2nd mortgages, etc. Also, a lot of the matrices are also the same. For example, raw land for residential is typically 50% loan to value. The same is true with commercial. Owner occupied properties offer high loan to values and better rates. ETC ETC. And yes, there is a whole market built around hard equity for commercial just as there is for residential. (Warning: High fees to get in, high rates, and sometimes high exit fees or prepayment penalties).
Although most of you will not come in contact with a commercial sale, it is worth the knowledge to know that commercial buyers do have a lot of options now compared to in the past. If you have a buyer that needs financing, send them to a broker that is familiar with the ins and outs of the commercial lending process. Although it is similar in programs, it is still a different beast.
I will post more information on commercial lending over the next couple weeks to provide examples of what is out there using real scenarios.
PS. Sorry for not putting fancy pictures or bold typing in this. I have a short break today.
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