Learn To Be A Fix & Flip Investor

Sunday, September 24, 2017

Understanding the Cost of Commercial Loans

Getting approved for commercial loans is great but you need to know what that loan is costing you. Having a grasp on the full cost of the loan is critical to selecting the best loan and lender.
Understanding that commercial loans are not only larger than personal loans but that the terms and costs are different is critical to making a smart choice for your business. Commercial loans are not as simple as consumer loans and you are not evaluated in the same method either. A business is much more dependent on economic conditions than a consumer is when it comes to financial stability. When times are tough economically, most people can keep within their household budget with a few minor changes but a business can be crippled by an economic turn of events. This makes business’s a higher risk when it comes to borrowing money.
As a result of the higher risk of commercial loans, lenders charge a higher interest rate to businesses. And that rate can be much higher for a new business or one that does not have a proven financial history. The lender will also look at the financial health of the company and its creditworthiness to determine the interest rate that it is willing to offer. Another factor is the loan to value ratio. This is basically a way of looking at how much you are asking to borrow as it compares to the value of the property that you are buying. This is because the property is the collateral for the loan and the lender wants to be sure that the property holds enough value to cover the balance of the loan if you default. Commercial property values tend to fluctuate more than residential properties so there is a better chance of the value dropping and the lender foreclosing on a property that does not have a market value large enough to pay off your loan. So unless you are making a substantial down payment then your loan rate will be a few points higher. This is just a little more security for the lender that they will get paid in full, one way or another.
Fees Can Quickly Add Up
In addition to the interest you are going to be paying some fees to your lender and in most cases they are paid up front. You will need to pay for a property appraisal, survey fees and any legal fees that are associated with the drawing up the contract. Sometimes these fees are call loan origination fees or loan application fees but they are basically to cover the administrative costs of the lender. You should also understand that these are nonrefundable fees and that they are simply gone if you are not approved for the loan. For this reason, you want to have your financial documentation in order before you begin the application process.
Confirm the Cost Upfront
Before you begin the application process, it is not unreasonable for you to as the lender for a detailed accounting of their fee structure. This should tell you about any fees or costs that you are required to pay upfront and also any fees that will be reoccurring annually. You will likely not get quoted an interest rate at that time as the lender needs to review your financials before determining the rate but it will give you a good idea of the fees and then you can plug in a general estimate for interest to know the total cost of the money that you are potentially borrowing.

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Basics of Commercial Real Estate Loans

Understanding commercial real estate loans is the first step in deciding if you are ready to own a commercial property. Learning about the process will ensure that you know what to expect and how to prepare yourself and your business.
Owning a successful business is a rewarding accomplishment and one that might be leading you to consider purchasing a commercial property for your business. But you need to know more about the process and the requirements before you begin to invest your valuable time in searching for a property. The application process is not as simple or fast as a personal mortgage process and the documentation required can be much more in depth. But once you understand the eligibility and requirements you will be better able to make your decision about purchasing a commercial property.
Commercial real estate loans are secured by liens on the property that you are purchasing. The lien gives the lender the right to take the property from you if you do not make the payments that are outlined in your loan documents. This protects the lenders investment in the event that your business fails, the economy disrupts your business or any other issue that could cause you to default on the loan. But because commercial property value can fluctuate more than residential property, the lender requires that you make a large down payment on the property. This is a way of creating instant equity which is good for both you and the lender. It reduces the amount that you are borrowing and therefore reduces the amount of interest that you are going to pay. And it also helps the lender to know that if you default on your loan, then they have a better chance of recovering all of their investment even if the property value has dropped since you purchased it.
Commercial real estate loan terms are also a bit different. They are normally in two terms. The first is intermediate and is for three years or less and the long term is from 5 years to 20 years. There is also a balloon loan that is an option. In this case the loan payments are mostly just covering the interest and at the end of the term you owe a final payment that covers the balance of the loan. In most cases the payment is very large and the borrower is forced to refinance the loan to cover the final payment.
Know Your Interest Rate
Because a business’s financial stability is more tied to the economy than that of an individual, lending money to a business is, in general, considered to be more of a risk. For that reason, commercial loans tend to have a higher interest rate and additional fees that must be paid. Be sure that you are carefully examining all of the fees and interest that you are agreeing to pay before you sign the loan agreement.
Research Your Options for Lenders
Knowing about the commercial real estate loans process is only half of the research that you need to complete. You will also want to learn about all of your options for lenders. Commercial banks, credit unions, mortgage lenders and the Small Business Administration are all good options to explore when you are ready to apply for a commercial real estate loan.

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The Differences between Residential Loans and Commercial Real Estate Loans

Most people assume that all mortgages are basically the same. But there are some very key differences between residential loans and commercial real estate loans.
Many business owners assume that when they are ready to buy a commercial property, the process will be much like when they applied for a personal home loan. The fact that it is a loan used to purchase property is the same but there are a few important differences that you need to fully understand before you begin to search for and apply for commercial real estate loans. The process is more in-depth and requires more documentation than a standard home loan. Knowing the process will help you to manage your expectations and be successful when seeking your loan.
The first difference is that your business entity might not have a financial history that is long enough to secure a loan. If that is the case then the lender is going to require the owners of the business to guarantee the loan. This is the lenders way of ensuring that there will be someone to repay the loan if the business fails or is unable to make the loan payments. If this is the case that your business is facing then you should be prepared to submit all of your personal financial records along with your business financials to the lender. If there are multiple business owners then each one should submit their personal documents. This can include historical tax documents, bank statements and an over view of any investment portfolios that the principals own personally.
The repayment schedule for commercial real estate loans can also be very different from personal mortgage payment schedules. A home loan is amortized, meaning that the debt is repaid over regular installment payments. The longer the loan is the lower the monthly payment but the higher the interest and the loan can range from 15 years to 30. A commercial loan is normally from 5 years to 20 years and the amortization period can be longer than the loan term. This means that the borrower is often faced with a final payment due at the end of the loan term. This is called a balloon payment and can often be quite substantial. Borrows most often must refinance the loan to pay the balloon payment on the initial commercial loan.
The Cost of Commercial Loans Can Be Very Different
Commercial loans represent a greater risk to the lender than a standard personal mortgage loan. Businesses are more at the mercy of the economy than consumers so there is a greater risk of defaulting on the loan. For this reason, lenders charge a higher interest rate on commercial loans. In addition there can be many additional fees that the borrower must pay. There can be an origination fee, legal fees, appraisal fees and even some annual fees that are paid for the life of the loan.
Do Your Homework and Be Prepared
Understanding the differences between your home mortgage and a loan for a commercial property is very important. It allows you to create realistic expectations for the process, it helps you in grasping the time frame that is required for the approval process and helps in understanding your full commitment to the loan.

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Understanding Commercial Mortgage Loans

Understanding the process involved in obtaining a commercial mortgage loan and the requirements to qualify for the loan are important for a business owner. It can make what once seemed like a very intimidating process less complicated.
When you are considering a commercial mortgage, you need to first decide if you want to get a nonrecourse loan or a recourse loan. The difference is that with a nonrecourse loan the lender can only take back the property in the event of a default but with a recourse loan the lender can require you to pay additional money if the property value is no longer enough to cover the loan balance. Getting a nonrecourse loan offers you, the borrower, additional security that in the event of a default on your loan, you will not be forced to pay additional money that you might not have. It protects your personal assets such as your home, retirement account and other investments that you might have.
Next you will want to consider which type of terms you would favor for your loan. A fixed rate mortgage is very popular because the rate is set and you do not need to worry about future budgetary surprises. Adjustable rate or variable rate mortgages sometimes offer a better interest rate but you are risking a rate increase which could be very unexpected. This can make it difficult to budget for the future and can cause you added financial stress when the interest rate increases.
The final type of mortgage term is called a balloon mortgage. This is more unique than the first two types in its repayment schedule. With this mortgage you only pay the interest each month but no principle. You can pay extra towards the principle but it is not required. But at the end of the loan term you are required to make a single payment, the balloon payment, for the remaining balance of the loan. This can leave you with a huge payment due at the end of your loan. Most borrowers are forced to refinance their mortgage balance when the term is completed to make the balloon payment. But the benefit is that you have enjoyed very low payments throughout the term of the loan.
Getting Your Loan
Finding a commercial mortgage loan can take some time but there are many lenders that you can work with. It is important to shop around for the best rates and terms to meet your current and future needs as a business. So invest the time to find the best lender for you.
Make a Great First Impression
When you are applying for the loan remember that the lender is judging your businesses ability to repay the loan as well as to be successful in your field of business. Taking the time to have your business and personal financial information prepared is critical. This will show the lender that you are very professional, that you are taking the loan process very seriously and that you are prepared both for the application process but also the process of repaying the loan. Making a great first impression will be very beneficial for a successful loan application process.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Becoming Familiar with Commercial Lending Documentation is Critical to Your Success

Understanding what each commercial lending document states and how that information is critical to your loan is very important to insure that you are getting the loan and terms that are best suited for your needs. It also helps you to understand what is expected of you and your business during the time frame of the loan.
Your loan agreement will contain most of the important information about your obligations to the lender and their obligations to you. First, the agreement defines the parties involved in the loan agreement. It is stating that your business and you by extension are the borrowers and if also defines the lender. Next it will cover the legal items such as conditions precedents, representations and warranties, affirmation covenants and negative covenants and events of default. All of this legal information is best reviewed by your business lawyer or attorney. In most cases it is very standard but even the most standard of legal documents can be confusing to anyone without a law degree. It is always best to have any contract or agreement reviewed by a legal professional before signing.
The promissory note is a document that provides the lender with additional security and confidence that they will get their money back for the loan that they are processing for you. This document is telling you, the borrower, how much is to be paid back and when it is to be paid. You are agreeing to the terms and conditions of the repayment schedule by signing the note. It is also important that you understand that a promissory note is a liquid asset and that it can be sold by the lender.
There are a number of other documents that your lender could include in your processing. Some would pertain to your business such as the corporate resolution, the deed of trust, the guaranty, and the pledge agreement. Other documents are very general but cover any legal loopholes that might arise. These documents could include an error and omission agreement, the disclosure and authorization forms and the security agreement. Again, any of the documents that you are not familiar with should be reviewed by your legal professional prior to the signing of the loam agreement.
The Borrowers Commercial Lending Agenda
When you are reading the loan documents you will be looking for certain points which should be defined to meet your needs. You want to see that funds will be available when you need them and at the interest rate that you had agreed upon. You will also want to verify the repayment terms of the loan. This means that you have the time that you requested to complete the repayment process and that any grace periods that you requested are included in the documentation. In general, you are looking for the lowest cost loan with the most beneficial repayment plan that you can get.
Understand the Lenders Goals
As well as understanding your goals and requirements for the loan you need to understand that the commercial lending firm has the opposite goals. They are looking to make money from the process and to do that they will need to get as much interest from you as possible. This can be done with a higher interest rate, a balloon payment or added fees. Reading and understanding all of the documentation for your loan will insure that you are getting the best loan to meet your needs and at a fair cost.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Comparing Commercial Mortgage Terms

Understanding the terms involved in a commercial mortgage is critical. These terms will help you to select the loan that best meets your current needs and your needs for the future.
Most business owners first and biggest concern when shopping for a commercial mortgage is the interest rate. This is one of the biggest factors in how much you are going to pay to borrow the money that you are requesting. As a borrower, you can look at the interest as the cost of getting a loan. And also understand that most businesses are never in a position to purchase a commercial property without getting a loan. It is the business equivalent of a home mortgage. It is also the way that the lender is going to make money from the deal.
Another important factor to consider is an adjustable rate versus a fixed rate commercial mortgage. A fixed interest rate is one that is set at the time of the loan creation and it remains constant for the entire term of the loan. This provides stability and makes it very easy to budget for future loan payments. A variable or adjustable rate is one that can fluctuate from month to month based on the prime rate and other factors in the economy and business world. In most cases the variable rate starts out lower than a fixed rate but the fluctuation can cause it to end up being much higher. Overall a variable rate is more of a gamble than a fixed rate and can be much more difficult to work into a long term budget.
Finding a term, or time frame, for the repayment of the loan is also very important. A shorter term means that the monthly payments will be larger than if you were to elect for a longer term. You will want to find a balance between the amount that you can afford to pay each month and how much interest you are willing to pay for a longer term.
Banks Make Money from Interest
Knowing that the bank is in business to make money, it makes sense that they are counting on you paying interest for a certain period of time, the term of the loan. If you choose to pay the loan off early then the bank is not getting paid as much interest and they are not making as much money. To offset that potential loss of interest and revenue, many lenders will insert an early payoff penalty clause into your loan. In some cases it is a percentage of the interest that you don’t pay due to the decrease in the term or in other cases it is a flat fee that you must pay. Knowing if there is such a clause will help you decide which loan offers the best terms to meet your needs.
Evaluate All of the Terms Carefully
When you are evaluating terms on a commercial mortgage, it is important to understand all of the fees as well as the repayment process. All of this information tells you how much you will truly be paying for the money that you are borrowing and also how long you will have to repay the money.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Comparing Commercial Mortgage Terms

Technorati Tags: commercial loans,commercial lending,commercial mortgage

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Sunday, September 24, 2017

Understanding the Cost of Commercial Loans

Getting approved for commercial loans is great but you need to know what that loan is costing you. Having a grasp on the full cost of the loan is critical to selecting the best loan and lender.

Fees Can Quickly Add Up

Confirm the Cost Upfront

Basics of Commercial Real Estate Loans

Understanding commercial real estate loans is the first step in deciding if you are ready to own a commercial property. Learning about the process will ensure that you know what to expect and how to prepare yourself and your business.

Know Your Interest Rate

Research Your Options for Lenders

The Differences between Residential Loans and Commercial Real Estate Loans

Most people assume that all mortgages are basically the same. But there are some very key differences between residential loans and commercial real estate loans.

The Cost of Commercial Loans Can Be Very Different

Do Your Homework and Be Prepared

Understanding Commercial Mortgage Loans

Understanding the process involved in obtaining a commercial mortgage loan and the requirements to qualify for the loan are important for a business owner. It can make what once seemed like a very intimidating process less complicated.

Getting Your Loan

Make a Great First Impression

Becoming Familiar with Commercial Lending Documentation is Critical to Your Success

The Borrowers Commercial Lending Agenda

Understand the Lenders Goals

Comparing Commercial Mortgage Terms

Understanding the terms involved in a commercial mortgage is critical. These terms will help you to select the loan that best meets your current needs and your needs for the future.

Banks Make Money from Interest

Evaluate All of the Terms Carefully

Comparing Commercial Mortgage Terms

Understanding the terms involved in a commercial mortgage is critical. These terms will help you to select the loan that best meets your current needs and your needs for the future.

Banks Make Money from Interest

Evaluate All of the Terms Carefully

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