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Are you an entrepreneur, an investor that's new to Commercial Lending, or just someone who is interesting in owning their own Commercial income property? Do you have questions about borrowing money to fund a new Commercial property, to purchase a existing property, or just to refinance? Your search for Commercial funding starts and end here!.
Commercials funding is a subject that raises many questions. Before we can help you secure financing, we make sure that you are getting the best financing package for your financial needs, but first there are a few basics you should understand.
If you’re new to commercial real estate financing, you’ll want to get a firm understanding of the differences between a residential and commercial mortgage loan. Residential real estate uses a debt-to-income formula for judging your ability to repay a loan while commercial real estate is based on the debt coverage service ratio formula to qualify. This means that to qualify for a commercial loan, you’ll have to know what your projected return on investment (ROI) will be when making a commercial property purchase or refinance.
The cash flow generated from your commercial real estate property will be one of the factors in determining both the value of the property as well as its future return. The type and amount of your commercial loan is also dependent on other factors, including your business and personal credit history, your net worth or financial strength, the type of property and its overall condition, its cash flow, the geographical location of the property, and the general economic outlook of the local market.
The first step to purchasing or refinancing your commercial property is to know exactly how you’ll use the property. What type of property will you acquire? How will the property be used to improve your cash flow and financial goals? How long will you hold the property? Will you be an owner/tenant or just an investor? And do you have an exit strategy? These are all questions you’ll want to think about before applying for your commercial financing.
After you’ve established the market need and use for the property, you’ll also want to analyze its current and future cash flow that will contribute to your ROI. So give us a call today, and we’ll help you get started and answer any other questions you may have.
Before and during your application process we make sure that we do our homework and never afraid to ask our lenders questions on your behalf. If you don’t understand any aspect of your financing transaction we make sure you do, before we go any further.
Let’s cover some basic terminology you will be exposed to during the Commercial real estate funding process:
Debt Coverage Ratio
Debt coverage ratio is the ratio of cash flow to your monthly loan payment. our Commercial Property lenders usually require that the property generate a certain level of cash flow per month. The standard debt coverage ratio usually required by our Commercial Property lenders is 1.16, although in some circumstances it can be lower.
Loan to value
Loan to value, or LTV, is a ratio that compares the value of a property to the amount of the loan. Our Commercial Lenders generally favor loans with an LTV 0.50 to 0.95.
Loan Term
The term of a loan is simply the length of time before full payment of the loan is due. With residential mortgages, the term is usually either 15 or 30 years. However with Commercial Financing your term will usually be 15, 20, 30, 35 years although other options are available.
Prepayment Penalties
Standard Commercial Loan may or may not include penalties for paying your loan off early. Generally lenders utilize a sliding scale to assess the amount of the penalty based on the remaining loan amount. As a rule of thumb, each passing year reduces the penalty percentage.
What Else Should You Know?
• Commercial Loans may have different terms and conditions when it comes to responsibility of property upkeep than the residential financing you may be used to.
• Commercial Lenders and Commercial properties may have restrictions on improvements, appurtenances, and equipment. We will find out about this before you sign anything because telling our lender we didn’t know the terms of your loan down the road will not excuse you or us from having to adhere to the terms and conditions of your Commercial loan. CLICK HERE TO APPLY
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