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California Commercial Loan Called Due? Private Money May be a Solution

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Mortgage and Lending with All California Lending BRE# 01458390

When property owners take out commercial loans, they often rely on banks for financing. Banks offer several benefits, such as lower interest rates, longer repayment terms, and more lenient repayment requirements. However, when the property's income drops below the debt service coverage ratio (DSCR) requirements, the bank can call the loan due, leaving the property owner in a tough spot. In such cases, private hard money commercial loans can be an excellent solution for property owners.

Why Banks Call Commercial Loans Due

When a property owner takes out a commercial loan, the bank assesses the property's income and expenses to determine the DSCR. The DSCR is a measure of the property's ability to generate sufficient income to cover the loan payments. If the DSCR drops below the required threshold, the bank may call the loan due. Banks can also make cash calls, requiring the borrower to pay down the loan to meet the DSCR requirements.

Banks have the legal right to call loans due and to make cash calls under certain circumstances. However, these actions can be stressful and disruptive for property owners, especially if they do not have the resources to meet the bank's demands.  Some reasons that this may happen include higher vacancy rates and/or lower rents.  If the bank holding the loan decides to review the file and income numbers and vacancies have increased or rents have decreased – or a combination of the two – it’s possible they can make the decision to call the loan or require it to be paid down to a level where it does debt service at their target ratio.

How Private Hard Money Commercial Loans Can Help

California private hard money commercial loans can provide a solution for property owners whose commercial loans have been called due. Private lenders are less concerned with DSCR ratios and vacancy issues than banks. Instead, they focus more on the property's value and loan-to-value (LTV) ratio. Private lenders can also provide financing more quickly than banks, which can be critical in urgent situations.

Private hard money commercial loans can also provide other benefits, such as more flexible repayment terms and fewer documentation requirements. Private lenders can work with property owners to create customized loan terms that meet their specific needs.  This can include interest reserves, or could include money for property improvements to help attract new and/or higher paying tenants.

If you're a property owner whose California commercial loan has been called due, private hard money commercial loans can provide a solution. Not only are there long term, 30 year fixed options, but also short term bridge loan options.  With a shorter term bridge loan a commercial property owner can refinance out of the bank loan that is being called and into an interest only loan.  During the term of the hard money loan they can work on repositioning the property, decreasing vacancy or increasing rents.  At that point a property owner can then explore bankable options for longer term financing again.

For those commercial property owners with a loan called due – or who are looking for alternative financing options - feel free to give us a call to discuss the details of your transaction.  We specialize in private hard money loans in California and have many commercial loan options and programs.  We are happy to listen to your scenario and work together to come up with a solution that will meet your needs.