When it comes to financing a "commercial loan" people get a little nervous. You hear things like "its too much paperwork" or "how can i find a bank that will give me a loan for my business?" I'm hear to try to convince you that now a days, a commercial loan is not to hard at all. What defines a commercial loan? Well, as a general rule it's any muti-family 5+ units, warehouse, office building, retail space, hotel, assisted living facilitiy, medical office, gas station, restaurant, etc...
The main thing to keep in mind with these types of loans is-1) what income is being generated by the business or property. This is very important to a lender of any kind. 2) Is the property elligible for purchase or refi? Most banks want to know about the business itself. For example- I had a client who I refinanced there residence and then when I took a look at his business he had some 21E issues. 21e is basically "hazardous materials" on site" Usually, when this type of issue arises, the lender wants to know if a recent report has been done by an environmental group that specializes in checking the work site for contaminants and other "tainted" materials.
Here is a couple quick qualifiers to help you get a feel if the loan is a doable commercial deal-
These are referring to Refinances and purchase...
1- How much is the loan- certain lenders have restrictions on this before you get hit with rate increases
2- Has the borrower owned the property for at least 1 year?
3- Do they have signed purchase contract?
4- Whats the credit score- as a general rule they want it to be at least in the mid 600's
5- Have they been in the same business for at least one year?
6 -LTV ratios as in residential protperties are also factored in
7- Finally there is the Debt Service Coverage Ratio- which is a ratio of debt as compared to income genrated form property (much like DTI) - its a little more complex then DTI if you want a copy of a template I made to find out the Debt Service Ratio- I'll be sure to email you one.
thats basically it- you can also get cash out for the business if your refinancing
What are the rates like? They are obviously higher than residential loans of the same criteria
THey do have more and more products coming out for these loans as well. I saw the other day a 30 year fixed for a commercial loan- no balloon payment!!
Any questions or if you think I forgot something please let me know!! Have a great day!!