Understanding the Logic behind the Process of Commercial Real Estate Loans

Getting approved for your first commercial mortgage can be a challenge. The best way to ensure a successful loan application is to have a good knowledge of commercial real estate loans.

There is a lot more to obtaining commercial real estate loans than you might first think. The process is more complicated and lengthy than even the most difficult residential home purchase. But because of the significant amount of money involved and the added risks, lenders are much more selective when it comes to approving an application.

Technically, commercial real estate loans are secured by liens on the property which is being purchased. That property is the lenders security and ability to recover their money if you default on the loan. But there are additional factors which make commercial real estate loans much more risky than a residential loan. First, commercial real estate values can fluctuate very rapidly. This can leave a lender repossessing a property which is worth far less than the remaining balance on the loan. In addition, the business which is purchasing the property has a greater chance than a consumer of suffering financial hardship as a result of a sudden change in the economy.

Because of the increased risk that the lender is facing, interest rates are higher and loan terms are shorter on a commercial loan than they would be on a consumer loan. Most commercial loans are for a ten year period or less as opposed to a residential mortgage which can range from 15 years to 40 years in some cases. And even with these shorter terms the interest rate for a commercial loan is about 1% higher. Commercial lenders also require a 20% down payment in most cases. This gives the added security that the property will always remain greater in value than the amount of the outstanding balance of the loan.

The Application Process

When applying for a home mortgage, borrowers must be able to demonstrate that they have the ability to afford the monthly payments and that they have steady income. Commercial borrowers much also prove that there is a means of making the loan payments. But because a business is more reliant on the overall economy, they must show that the business is in good financial health, that it is being managed well and that it has sufficient cash reserves to weather a financial down turn or hardship. In some cases, the owners must also include their personal financial documentation if the business has poor credit, no credit or has not been in operating for more than 5 years.

Understanding the Lending Process

All lenders are in business to make money. Understanding that fact makes it easier to understand why commercial lending can be difficult to secure. The increased risk that the lender faces needs to be rewarded with higher interest and shorter repayment terms. In addition, the lenders are more careful about the creditworthiness and the financial health of the borrowers. With the economy having a bigger impact on businesses, lenders want to verify that a business is stable enough to survive a short economic crunch or down turn in business. Know this information and creating a loan application package that demonstrates your financial stability will greatly increase your opportunities for commercial financing.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

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

Understanding Commercial Loans and Where to Obtain One

There are several different types of commercial loans available to borrowers. Selecting the best loan to meet your needs and the best lender is very important for the success of your business.

There are several different types of commercial loans available and each one is best suited for different needs. Understanding how these loans differ can help you to make a wise selection about which loan will best meet your current and long term needs. When you are evaluating commercial loans, think of your lender as a service provider and evaluate the product or loan just as you would any other service or product that you would be purchasing. Investing some time to learn about each loan can help to ensure your future success in the business world.

A bridge loan is a short term loan for around a year. This can be used for cash flow, to construct a building before refinancing or even to make a commercial real estate purchase quickly. These loans require very good credit and are normally provided by private lenders. Because the lender is a private entity, there are fewer rules regarding the terms and the processing and fulfillment times are substantially faster than conventional lenders.

Real estate purchase loans are much like fixed rate and adjustable rate loans and are typically only offered to borrowers with exceptional credit of 700 or more. The commercial property must be used as the collateral on the loan and the rate is determined by the loan to value ratio. Hard money loans are a form of loan which comes from a private lender and often has a very fast turnaround time but comes with a high interest rate. The property is also the collateral for these commercial loans. Often times a hard money loan is used as a last resort to try to save a property from foreclosure. Due to the high risk involved, the lenders can justify the very high interest rates and the borrowers are willing to pay them in an effort to save their property from foreclosure.

Determine Your Needs

Before you set out to get a commercial loan, you need to have a well-defined purpose for the funds as well as a financial plan to repay the loan. Having that information will help you to determine which type of loan will best suit your needs at the present and in the future. This information along with your credit history will also help you determine who will be your best candidates for lenders. Conventional lenders such as banks and mortgage companies are the option which would normally be the most cost effective if you have the necessary level of credit rating. If creditworthiness or length of credit history is an issue then a private lender might be your only option. If that is the cast, you should expect a higher than average interest rate. This is the price that you must incur to get a lender to take a greater risk on you as a borrower.

Invest Time First, Then Money

When you are preparing to make an important financial decision such as getting a commercial loan, it is critical to invest your time in research long before you invest your money in loan application fees and appraisals. Take the time to learn about all of your options and then shop for a lender who offers you the best rate and terms to meet your needs.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

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

Tips to Secure Commercial Lending

Commercial lending is a much different landscape than consumer lending. Knowing a few tips about the lenders and the process can greatly improve your chances of getting a loan.

Appling for commercial lending is a long and often arduous process. The dollar amounts involved are rather substantial and that makes the approval criteria and process much more challenging. Lenders are interested in finding borrowers who will successfully repay their loan and the interest associated with it so that they are making their money. Understanding the lenders point of view and working toward that goal with them can make your loan application process much less stressful and difficult.

It is never a bad idea to keep your options open. Having a rapport with a few lenders is always a great plan. Investing the time to meet with lenders, understand their criteria for lending and just chatting with them about your potential needs will lay the ground work for the day that you do submit a loan application.

It is also wise to think of the lenders that you have relationships with as you would any other vendor. In this case the vendor is supplying you with money but that is after all what a service provider does. It is not dishonest or disrespectful to speak to several lenders for the same loan. You are shopping for the best deal and that is simply smart business.

The only way that you can make a mistake when creating commercial lending relationships is if you are not completely honest with the lenders. You are wasting your time if you are not honest in the information that you are providing about your business and yourself. The information and advice that you are getting will be tailored to the information that you give the lender. And if that information is false then most likely they will not be providing you will accurate or useful tips, information or processes.

Make the Right Impression

Commercial lending is a numbers game and the best credit score and credit history will get you the lowest interest rate. But there can also be a little grey area. This is where the lenders opinion of you and your business comes into play. You want to be honest but also paint the most impressive picture that you can when telling your story. Promote your strengths and successes as well as your goals and how you plan to attain them. Another way to impress a lender is to submit a completed loan application package that looks professionally prepared. Be certain that all of the needed documentation is included and that the format is easy to understand and follow.

Focus on Collaboration

Both you and your lender have a great impact on the outcome of your loan application. By investing your time and effort in the process and application preparation you can greatly improve the outcome. Honesty and professionalism will get the attention of your lender and could be that small difference that convinces your lender to approve your loan application.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

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

Tips for Selecting Commercial Lenders

Selecting commercial lenders to work with is a critical step a successful real estate transaction. Thinking of potential lenders as business partners or service providers is the first step in a successful selection.

In many instances, borrowers tend to look at commercial lenders as a higher power who controls their destiny when they are seeking a loan. And though the lenders is a critical factor, they should never be viewed as anything but a business partner, ally or service provider. They have a product which you want and need, money, but it is just that, a product. And as with any business partner or supplier, you will want to do your research and find the best solution to fit your needs. In this case service, the ability to cultivate a long term relationship and financial details of the loan will all have an impact on your selection.

The money is the key to this relationship, so your first questions for a lender need to be regarding the terms which they offer. Loan to value (LTV) is the ratio used to compare the amount of the mortgage to the market price of the property. Lenders who offer a highest LTV should be favored over other lenders. The high LTV provides you with greater purchasing power and more options for your purchase. Interest rates are another key term to consider. This is basically how much commercial lenders want to make for the service which they are providing to you. The interest payments can be the majority of the monthly payment which can have a huge impact on your monthly cash flow. Be certain to find a good balance of loan to value and interest to meet both your need for buying power and monthly cash flow. The final fee to factor in is points that you will pay as a lump sum or throughout the loan.

Having a good working relationship with your lender is also crucial. You need to be able to speak openly and ask any questions that you might have. One important question to ask is about any additional fees. Some lenders will add fees such as documentation fees, legal fees or administrative fees. Be certain that you plainly ask about any “additional” fees and factor them into the total cost of the loan.

Time is Money

Timing can be everything when purchasing commercial property. Asking a lender to provide you with realistic timelines for funding will dictate how quickly you can complete any purchase. As a work around, you might want to see if the lenders offer pre-approval. If there is no option for pre-approval then having an accurate time frame for processing documentation and a guaranteed access to funding date is important. Better rates but a slow timeline can kill a great deal.

Look For a Long Term Finance Partner

Selecting the best commercial lenders to work with can be a process which requires a good deal of time and effort. But the work that you invest in creating a strong and lasting relationship will pay off each time you complete another loan with your lending partner. That long term relationship will provide you with a great long term return on your investment.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

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

Tips for Landing Commercial Loans

Commercial loans are all about risk. Lenders are looking for some very specific criteria before they are willing to approve a loan application.

Commercial loans are more difficult to get than consumer loans because they are often for a much larger dollar amount. Lenders are in business to make money and that means that they must be very selective when lending a large sum of money. Understanding the criteria that lenders use to evaluate applicants and why they have these standards will help you to tailor your documentation to these criteria and show lenders all of the right information about your business.

Lenders are first and foremost concerned with your ability to repay the loan that you are requesting. They want to see long term documentation in the form of profit and loss statements, bank statements and tax returns to demonstrate that your business is financially stable. The might also want to see documentation about other credit which has been extended to your business. This could be in equipment rental, from a supplier of materials, from a property that has been leased or from a vendor. Lenders also favor a borrower who has some cash in savings to cover expenses in the event of a slowdown in business and revenue.

The next big interest for a lender is that the commercial property that you are purchasing has a value greater than the loan which you are requesting. This is because the property will serve as collateral for the loan. In the event that you default on the loan, the lender will take possession of the property and sell it to cover the outstanding balance of your loan. In most cases the loan will only be approved for about 80% of the property’s current value. This is due to the volatility of commercial property values. Having that instant equity in the property assures the lender that even if the property value drops, the loan will still be adequately secured.

Becoming a Personal Guarantor

In some cases a business entity does not have sufficient credit history to demonstrate financial stability. When that is the case commercial loans are secured by a personal guarantor which is normally the owner of the business. The owner needs to be able to demonstrate to the lender that their personal assets and money can be used to cover the loan payments. Again, the lender will need to see documents including bank statements, tax returns and personal net worth statements to verify the guarantor’s finances.

Understand the Lenders Goal

In almost every case, a lender is simply looking at numbers to determine if a loan applicant is a good risk. Knowing this information, it is critical that you show repeatedly that the business is financially stable, has a strong and steady stream of revenue and that you are also financially stable. In addition showing that the business has sufficient cash reserves to bridge a short term cash flow issue will give the lender added confidence in your ability to repay the loan that you are requesting. Approval for commercial loans is based on ability to repay the loan and the financial stability of the business in almost all cases.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

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

Tips for a Faster Closing on Commercial Loans

Time can be a critical factor in some commercial property purchases. But even when time is not a factor the purchase, your time is valuable and you want to close on commercial loans as quickly as you can.

Commercial loans require a great deal of time and information. Lenders need to verify the borrower’s ability to afford the loan and the payments before they are willing to assume the risk of funding the loan. And the only way for all of this investigation and discovery is to provide detailed documentation to the lender. If you are completing the application process for the first time or it is your first application to a new lender, then you should ask for a very detailed list of documents that the lender will require. This not only shows the lender that you are consciences but also that you are eager and willing to invest the time needed to get them their requested documents. Your lender is likely to work at the same speed at which you do when they make a request from you. Work quickly to set the bar high and have your loan completed in the shortest amount of time possible.

Most lenders have a complete list of the documents that they need to evaluate applications for commercial loans. Requesting that list early will allow you to invest the time necessary to assemble a complete and thorough loan application. Consider this document to be your official introduction to a new business partner. Be certain that it is complete, professional and free of errors. This is your one chance to make a good first impression and demonstrate your overall professionalism.

When submitting documents, be sure that your profit and loss sheets are well labeled and easily understood. Call out any one time expenses clearly so that there is no question of missing information. Included full copies of the past two years of tax returns for the business and for any owners. If anyone has filed for an extension, include a signed copy of that document as well. Also, be sure that any bank statements which have been requested are included in full. Do not omit blank pages.

About the Property

Including photos of the interior and exterior of the building can be very helpful, especially if the lender is not local. But even if you are using a local lender, the pictures are helpful and can offer a more complete view of the property. Also be sure that any health or safety issues are remedied prior to the lenders inspection. Most lenders want these particular issues repaired before the closing. Finally, if the property has current tenants, be sure to include valid copies of each lease in your documentation.

Do It Right the First Time

Lenders only make money when they are fulfilling commercial loans and earning interest. They are as eager to complete the application process as you are. Investing the time to present a complete and accurate set of documents along with your loan application is certain to make the approval process more rapid. In addition, it is the best way to create a strong first impression and foundation upon which to build a long term business relationship with your lender.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

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

The Requirements for Securing Commercial Real Estate Loans

Due to the dollar amount of most commercial real estate loans, the criteria to qualify is more stringent. It’s important to understand these requirements before you apply for a loan.

Not only are commercial real estate loans substantially larger than most other loans, they are also inherently more risky. This increased risk is due to the fact that most businesses financial health is very closely tied to the overall economy unlike the financial health of a consumer which is more insulated. To offset this risk as much as possible, lenders are much stricter about the qualifications for commercial real estate loans.

The first step in securing a commercial mortgage is to have the property appraised. Legally, the lender will need to have this process completed but it is not a bad idea for the borrower to also have an appraisal completed. It is critical that the property value be equal to or exceed the amount of the loan being requested. This is simply because the property will be the collateral for the loan. Most lenders want to see the property value at least 20% greater than the loan amount to ensure that the collateral is always greater than the outstanding balance of the loan.

When a business entity is making the purchase, the lender is going to want to verify that the business is financially stable and has the ability to make the loan payments. The lender will request documentation to verify the cash flow of the business as well as the debt that the business is carrying. Lenders prefer to see a steady net income 20% greater than the debt. It is also important that the business have some type of savings or other assets which are very liquid in the event that the business slows and cannot make the loan payments from the months’ income.

If the business entity does not have a strong credit history or is relatively new, the lender will require the owner of the business or owners to become personal guarantors. This basically means that the business credit history does not merit the loan and the owners are willing to use their personal credit history and scores to obtain the loan. This also means that the owners are willing to use their own personal funds and property as collateral for the loan.

Understand What Lenders are requiring

In many cases there are nonrefundable fees which must be paid to apply for commercial real estate loans. Knowing that your business or your personal credit is strong enough to secure a loan is very important before you begin the long process of a loan application and pay the fees to have the application processed. If you have any questions about the qualifications, you should invest your time in more research.

Due Diligence

There is a lot to understand when seeking a commercial loan and researching the process, the potential lenders and the criteria for securing a loan is a very smart choice. Speaking to a local bank or a mortgage lender is a good way to gather information and learn about the process to help you avoid wasting both time and money if you are not prepared to meet the loan application qualifications.

Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

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