Thursday, December 4, 2008
Commercial Bridge Loans
We've launched a new website devoted to commercial bridge loans. A lot of content, including how to spot all of the scams out there.
Monday, November 24, 2008
Commercial Mortgages – Bad Credit
Commercial Finance Advisors, a national commercial mortgage broker, releases a free report (no email address required) on both what borrowers can do to improve their credit scores immediately and what loan options are still available for them in this credit crisis. In addition, for borrowers that want more information they have a 200 page book on credit repair for free as well.
Link to report and free book: Commercial Mortgages - Bad Credit
“As commercial mortgage brokers, we are interested in closing loans not selling credit repair services. We are working hard in this market and have taken a “whatever it takes” type attitude” Says Jeff Rauth President. “And if giving away some information will help potential clients get better loans and build some loyalty to us, we’re all for it.”
Info on Commercial Mortgage Lenders
The impact of bad credit on commercial mortgage options is negative, however borrowers still can get loans closed. And the credit crisis will eventually end. If the borrower do the work now to improve their score, in 3 to 6 months who knows where we will be - It might just be a lot better. “Keep in mind we, as a nation go through recessions ever 10 to 15 years.”
Commercial Finance Advisors is a national commercial mortgage broker that focuses on commercial real estate loans amount from $500,000 - $5,000,000 for both owner occupants and investors.
Link to report and free book: Commercial Mortgages - Bad Credit
“As commercial mortgage brokers, we are interested in closing loans not selling credit repair services. We are working hard in this market and have taken a “whatever it takes” type attitude” Says Jeff Rauth President. “And if giving away some information will help potential clients get better loans and build some loyalty to us, we’re all for it.”
Info on Commercial Mortgage Lenders
The impact of bad credit on commercial mortgage options is negative, however borrowers still can get loans closed. And the credit crisis will eventually end. If the borrower do the work now to improve their score, in 3 to 6 months who knows where we will be - It might just be a lot better. “Keep in mind we, as a nation go through recessions ever 10 to 15 years.”
Commercial Finance Advisors is a national commercial mortgage broker that focuses on commercial real estate loans amount from $500,000 - $5,000,000 for both owner occupants and investors.
Wednesday, November 19, 2008
Hard Money Commercial Loans – What Are They Thinking?
Why would any borrower accept 15% rates and 5% on the front of a hard money commercial loan? Because their other options are worse, that’s why. For example they may lose a substantial amount of equity out right or have to take on a partner that may take a higher percentage of their equity than a hard money lender would charge in fees.
Also the commercial hard money loans are easier and more reliable to attain than finding, negotiating and bringing on a partner or waiting months for a conventional loan to close (assuming the borrower qualifies). Partners also have the high potential of creating legal issues if the project does not work out as planned.
For borrowers seriously considering going with a hard money commercial lender it is wise to only use a source that has been referred to borrowers by an experienced, unbiased third party. This segment of the industry is filled with unethical people that have the bad habit of taking $5,000 good faith deposits with no intention of funding loans.
For many borrowers this $5,000 may be their last chunk of change and they can’t make the mistake of going with the wrong commercial hard money lender. Borrowers have almost no recourse either as most have to sign agreements stating that the fee is non refundable and the Letter of Intent is only a letter of “interest”. Which of course, relieves the hard money lender of funding the deal.
Commercial real estate loans
Also the commercial hard money loans are easier and more reliable to attain than finding, negotiating and bringing on a partner or waiting months for a conventional loan to close (assuming the borrower qualifies). Partners also have the high potential of creating legal issues if the project does not work out as planned.
For borrowers seriously considering going with a hard money commercial lender it is wise to only use a source that has been referred to borrowers by an experienced, unbiased third party. This segment of the industry is filled with unethical people that have the bad habit of taking $5,000 good faith deposits with no intention of funding loans.
For many borrowers this $5,000 may be their last chunk of change and they can’t make the mistake of going with the wrong commercial hard money lender. Borrowers have almost no recourse either as most have to sign agreements stating that the fee is non refundable and the Letter of Intent is only a letter of “interest”. Which of course, relieves the hard money lender of funding the deal.
Commercial real estate loans
Monday, November 17, 2008
Commercial Mortgage Refinance – Recent Closing
Commercial Finance Advisors is pleased to announce a recent commercial mortgage refinance. The property is an office condo in Atlanta, Georgia. Loan amount $1,250,000. The borrowers business occupied 100% of the office condo. Loan program was an SBA 7a loan, with a rate of 6.5%. The borrower was in a high interest rate loan, the commercial mortgage refinance saved the borrower thousands of dollars.
Link to commercial mortgage refinancing:
“We continue to grind out transaction, despite the credit crisis. The SBA 7a loan as well as other government sponsored programs are still viable. However, not all banks that offer government sponsored programs are still doing deals. You need to know which banks have the liquidity and desire to fund transactions.
http://www.cfa-commercial.com
Link to commercial mortgage refinancing:
“We continue to grind out transaction, despite the credit crisis. The SBA 7a loan as well as other government sponsored programs are still viable. However, not all banks that offer government sponsored programs are still doing deals. You need to know which banks have the liquidity and desire to fund transactions.
http://www.cfa-commercial.com
Tuesday, November 11, 2008
Commercial Hard Money
Many commercial mortgage borrowers, due to the greater realities of the market, are finding that the there only viable option is a commercial hard money loan. The terms are often surprisingly expensive for borrowers that are use to typical commercial real estate loans.
For example, market right now for commercial hard money is 12% - 16% interest only with 3% - 10% points on the front of the loan… Borrowers use to 2% over Prime as their rate, with a 1% bank fee are again, often floored by these terms.
No one ever willingly chooses to go the commercial hard money route. Instead they do so out of necessity. Borrower elect to accept the term after they have done an exhaustive search for traditional loans and have found no takers. The decision is boils down to which is more expensive, paying the 6% points or losing the business/building and or both.
Unfortunately as the credit crisis deepens and the future of the commercial secondary market remains in doubt, borrowers have to face the reality that it may be 2 to 3 years before the markets return. For some they simply cannot wait that long and have to choice their best alternative.
On a more positive side, the loan terms are interest only which often means a lower payment for the borrower, than they currently have. Also, if the loan request is a debt consolidation deal, the borrower will often save, from a cash flow perspective, thousands of dollars per month by lengthen the amortization, putting them in a stronger position to restructure and buying them time.
Again, borrowers do not normally pick hard money as their first option. But instead realize that this may be in fact their best option due to the realities of their individual situation and the greater markets.
For example, market right now for commercial hard money is 12% - 16% interest only with 3% - 10% points on the front of the loan… Borrowers use to 2% over Prime as their rate, with a 1% bank fee are again, often floored by these terms.
No one ever willingly chooses to go the commercial hard money route. Instead they do so out of necessity. Borrower elect to accept the term after they have done an exhaustive search for traditional loans and have found no takers. The decision is boils down to which is more expensive, paying the 6% points or losing the business/building and or both.
Unfortunately as the credit crisis deepens and the future of the commercial secondary market remains in doubt, borrowers have to face the reality that it may be 2 to 3 years before the markets return. For some they simply cannot wait that long and have to choice their best alternative.
On a more positive side, the loan terms are interest only which often means a lower payment for the borrower, than they currently have. Also, if the loan request is a debt consolidation deal, the borrower will often save, from a cash flow perspective, thousands of dollars per month by lengthen the amortization, putting them in a stronger position to restructure and buying them time.
Again, borrowers do not normally pick hard money as their first option. But instead realize that this may be in fact their best option due to the realities of their individual situation and the greater markets.
Monday, November 10, 2008
Restaurant Financing, Current Options
There are still viable options for restaurant financing in the market today. Borrowers however should realize and accept that the choices have become more limited, than they where just 6 months ago. For example, most conventional and or conduit type loans for restaurants are now gone.
Instead, borrowers should be focused on portfolio lenders, i.e. banks or lenders that hold the debt on their balance sheet. This is the opposite of what we have seen in the last decade as most restaurant lenders packaged and sold their loans off onto the secondary market and thus rid themselves of the loan in exchange for a split.
Portfolio lenders can be difficult to find though. And they don’t really advertise themselves as such. Borrowers should be prepared to call many banks to find sources that are set up as portfolio lenders and that are willing to consider a special purpose property like a restaurant. Many banks are shying away from this building type. We’re occasional are asked why.
The reason boils down to the difficulty in recollecting the bank’s capital in case of borrower default. When a borrower defaults on a loan, the bank has to go through the foreclosure process, than they have to sell the property on the open market to recoup their capital. Because the building itself was designed as a restaurant it cannot adequately be used for anything other than a restaurant – thus limiting their pool of potential buyers, making it harder to sell.
As far as terms, restaurant loans are almost all now quarterly adjustable. However rates are very strong due to Prime being as low as it is (currently at 4%). We are seeing most restaurant loans in the 6%’s now. Via government sponsored loan programs borrowers can still expect 85% financing on purchases and up to 85% on refinance transactions.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Commercial Loan Rates
Instead, borrowers should be focused on portfolio lenders, i.e. banks or lenders that hold the debt on their balance sheet. This is the opposite of what we have seen in the last decade as most restaurant lenders packaged and sold their loans off onto the secondary market and thus rid themselves of the loan in exchange for a split.
Portfolio lenders can be difficult to find though. And they don’t really advertise themselves as such. Borrowers should be prepared to call many banks to find sources that are set up as portfolio lenders and that are willing to consider a special purpose property like a restaurant. Many banks are shying away from this building type. We’re occasional are asked why.
The reason boils down to the difficulty in recollecting the bank’s capital in case of borrower default. When a borrower defaults on a loan, the bank has to go through the foreclosure process, than they have to sell the property on the open market to recoup their capital. Because the building itself was designed as a restaurant it cannot adequately be used for anything other than a restaurant – thus limiting their pool of potential buyers, making it harder to sell.
As far as terms, restaurant loans are almost all now quarterly adjustable. However rates are very strong due to Prime being as low as it is (currently at 4%). We are seeing most restaurant loans in the 6%’s now. Via government sponsored loan programs borrowers can still expect 85% financing on purchases and up to 85% on refinance transactions.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Commercial Loan Rates
Thursday, November 6, 2008
Hotel Loans – Now in the Credit Crisis
Where do you start? Hotel loans whether for purchase or refinance have taken a firm beating in this credit crisis. Basically, there are now only a few options on hotel loans. Probably 90% of all conventional hotel loan programs are gone. Deals over $3,000,000 are taking the worst of it, flagged or unflaged, conventional or nonconventional.
As many readers are aware, the issues on the commercial secondary market is the immediate cause of this mess. Very few banks are willing to portfolio hotel loans and instead are used to funding and selling the hotel debt off into the secondary market. Now since there are very few buyers, banks have to either pass on the deal or fund it and hold onto the loan in their balance sheet for the long term. Most banks would rather portfolio more general purpose properties like office or retail before they’d consider hotels. So deals that banks where willing to underwrite and fund just a few months ago, they are now backing away from in fear that there won’t be in buyers of the hotel loan.
Fixed rates on hotels are virtually gone. The vast majority of all hotel loans are now quarterly adjustable, based off of Prime. The typical margin is 2% - 2.75% over. Prime is now at 4% so most borrowers are looking at an effective rate of 6% - 6.75%. Ironically these are some of the best rates we seen in long time. But of course borrowers have to live with adjustable rates, and for some borrowers this is hard to do. Many don’t care (that much) and or recognize that this is the only option.
Debt coverage ratios have in general become more conservative (no surprise here) to a minimum 1.35. Some banks want to see ratio’s closer to a 1.4 -1.5 on conventional loans. Which basically means that the funding banks are "cherry picking". It also means that the loan to value will be very strong, most likely lower than 50% because the two ratios are tied together.
All in all, SBA loans rule the day with hotel financing. Again borrowers should be thinking about loan amount less than $3,000,000 to have more options. And on a positive note, despite all the carnage, borrowers are getting great rates, and high levels of financing through these government sponsored programs, like up to 85% on purchases and 80% on refinances. As always, the trick here is finding the commercial banks that are actually funding deals with the government programs. Just as with conventional loan most banks that used to do SBA loans are “on hold” until the market returns.
As many readers are aware, the issues on the commercial secondary market is the immediate cause of this mess. Very few banks are willing to portfolio hotel loans and instead are used to funding and selling the hotel debt off into the secondary market. Now since there are very few buyers, banks have to either pass on the deal or fund it and hold onto the loan in their balance sheet for the long term. Most banks would rather portfolio more general purpose properties like office or retail before they’d consider hotels. So deals that banks where willing to underwrite and fund just a few months ago, they are now backing away from in fear that there won’t be in buyers of the hotel loan.
Fixed rates on hotels are virtually gone. The vast majority of all hotel loans are now quarterly adjustable, based off of Prime. The typical margin is 2% - 2.75% over. Prime is now at 4% so most borrowers are looking at an effective rate of 6% - 6.75%. Ironically these are some of the best rates we seen in long time. But of course borrowers have to live with adjustable rates, and for some borrowers this is hard to do. Many don’t care (that much) and or recognize that this is the only option.
Debt coverage ratios have in general become more conservative (no surprise here) to a minimum 1.35. Some banks want to see ratio’s closer to a 1.4 -1.5 on conventional loans. Which basically means that the funding banks are "cherry picking". It also means that the loan to value will be very strong, most likely lower than 50% because the two ratios are tied together.
All in all, SBA loans rule the day with hotel financing. Again borrowers should be thinking about loan amount less than $3,000,000 to have more options. And on a positive note, despite all the carnage, borrowers are getting great rates, and high levels of financing through these government sponsored programs, like up to 85% on purchases and 80% on refinances. As always, the trick here is finding the commercial banks that are actually funding deals with the government programs. Just as with conventional loan most banks that used to do SBA loans are “on hold” until the market returns.
Wednesday, November 5, 2008
Daycare Centers Loans – From Leasing to Owning
The majority of daycare center owners, lease their facilities rather than own the underlying commercial real estate. Why? And, what are some ways that existing daycare centers can buy their existing building and enjoy the time tested benefits of owning? That’s what we discuss in this brief article.
First of all, many aspiring daycare center owners start off with the plan/desire to own their building. But often come to the conclusion that owning is just out of their reach financially, unfortunately. For example, say the daycare owner wanted to build a 8,000 square foot facility. And say the total project cost including land, construction, franchise fees, equipment and working capital totaled $1,500,000. If the daycare owner decided to own, they would be expected to shell out between 10% - 20% cash (depending on many factors such as if the daycare was a start up, risk tolerance of the bank, etc). At 15% the borrower would need to put $225,000 into the project.
If the daycare owner decide to lease the facility, on the same 8,000 square foot example above, they typically would only need to come out of pocket 10% -20% of the equipment, franchise costs, working capital and tenant improvement costs (space build out costs). These costs would normally be less than half the total project cost, or for this example approximately $600,000. The daycare owner would only need to come out of pocket $90,000 at 15% rather than $225,000 if they owned.
However, one of the easiest deals to get done, even in this credit crisis, is to buy the facility you are currently renting. Obviously you will need to come to an agreement with your landlord, but you might be surprised on how eager they are about talking to you about selling. Keep in mind, most landlords are constantly looking at new deals that requirement cash. So they may be very open minded to ripping up your lease and selling you the property.
As far as the down stroke on the purchase there is a little known guideline which can help reduce your out of pocket down payment to 5% or sometime less – It’s a form of rent concession. And NO you don’t already need it in place. From a conceptual standpoint it can be thought of as a lease to own type structure, where a portion of the monthly payment goes against the purchase price.
One of the keys here is that the value on the appraisal has to come in higher than the purchase price. For example, say you negotiate a $1,000,000 purchase price with the current owner. You have occupied the property for 2 years and paid $3,500 per month in rent or $42,000 per year. You could potentially attribute the $84,000 of this rent to go against the purchase price to cover your down payment. If the property appraised for $1,100,000 you could attribute the $84,000 of the rent you already paid. Your down stroke would be 15% of the $1,100,000 = $165,000 less the $84,000 of rent concession or total out of pocket of only $81,000. Versus a straight 15% of the $1,000,000 purchase price or $150,000 out of pocket.
If you lease your daycare center give this some serious consideration as the benefits of owning are substantial. Building long term wealth via depreciation, property appreciation and of course the chipping away of the mortgage with every payment you make, to name a few.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. commercial real estate loans or daycare center loans or commercial loan rates
First of all, many aspiring daycare center owners start off with the plan/desire to own their building. But often come to the conclusion that owning is just out of their reach financially, unfortunately. For example, say the daycare owner wanted to build a 8,000 square foot facility. And say the total project cost including land, construction, franchise fees, equipment and working capital totaled $1,500,000. If the daycare owner decided to own, they would be expected to shell out between 10% - 20% cash (depending on many factors such as if the daycare was a start up, risk tolerance of the bank, etc). At 15% the borrower would need to put $225,000 into the project.
If the daycare owner decide to lease the facility, on the same 8,000 square foot example above, they typically would only need to come out of pocket 10% -20% of the equipment, franchise costs, working capital and tenant improvement costs (space build out costs). These costs would normally be less than half the total project cost, or for this example approximately $600,000. The daycare owner would only need to come out of pocket $90,000 at 15% rather than $225,000 if they owned.
However, one of the easiest deals to get done, even in this credit crisis, is to buy the facility you are currently renting. Obviously you will need to come to an agreement with your landlord, but you might be surprised on how eager they are about talking to you about selling. Keep in mind, most landlords are constantly looking at new deals that requirement cash. So they may be very open minded to ripping up your lease and selling you the property.
As far as the down stroke on the purchase there is a little known guideline which can help reduce your out of pocket down payment to 5% or sometime less – It’s a form of rent concession. And NO you don’t already need it in place. From a conceptual standpoint it can be thought of as a lease to own type structure, where a portion of the monthly payment goes against the purchase price.
One of the keys here is that the value on the appraisal has to come in higher than the purchase price. For example, say you negotiate a $1,000,000 purchase price with the current owner. You have occupied the property for 2 years and paid $3,500 per month in rent or $42,000 per year. You could potentially attribute the $84,000 of this rent to go against the purchase price to cover your down payment. If the property appraised for $1,100,000 you could attribute the $84,000 of the rent you already paid. Your down stroke would be 15% of the $1,100,000 = $165,000 less the $84,000 of rent concession or total out of pocket of only $81,000. Versus a straight 15% of the $1,000,000 purchase price or $150,000 out of pocket.
If you lease your daycare center give this some serious consideration as the benefits of owning are substantial. Building long term wealth via depreciation, property appreciation and of course the chipping away of the mortgage with every payment you make, to name a few.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. commercial real estate loans or daycare center loans or commercial loan rates
Daycare Center Financing – Current Options
With major national daycare center lenders like UPS and CIT now out until further notice, many childcare centers owners and prospective owners are searching for financing options - and are finding few reliable programs.
One of the biggest issues here for both independent and franchised daycare centers is that most banks will no longer consider Tenant Improvement Loans. I.e. loans to build out leased space. Instead, most banks (that are still funding loans) want the collateral of the commercial real estate.
This can create a couple of different issues for the owner or franchisor. Number one, it can run right against the business model of the franchise. For example, the franchise might have a smaller location requirement and the process of finding land, going through the zoning/permitting, constructing the facility, etc don’t make sense, based on their smaller location model.
The other issue for the individual owner is that the capital injection will normally be greater, not on a percentage basis, but rather on a dollar amount. For example, on a leased facility, the operator would be expected to come in with 10% -15% cash of the tenant improvements/equipment costs. So, if these costs were $700,000, most franchisee have been expected to come in with $70,000 -$105,000 “out of pocket”.
If on that same deal, the operator decided (by choice or forced into due to the credit crisis) to own the facility, they would need roughly $250,000 to $375,000 i.e. 10% -15% of the total project cost (In this example, say $2,500,000). This difference in dollar amount is obviously substantial and will eliminate the opportunity for many hopeful daycare center owners.
For operators that can come up with the required cash, owning the facility is often their best route, regardless of the credit crisis. For one, their monthly payment is typically lower than if they leased. This increase in cash flow is paramount for any business whether daycare or not. Also, additional benefits such as depreciation and real estate appreciation are two classic advantages of owning. And of course, every month the borrower chips away at the loan balance building long term wealth rather than simply paying rent.
All in all, there are still options out there for daycare centers financing. However many industry players will have to be open minded and flexible with adapting to the current standards if they want to get there daycare centers funded.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out commercial real estate loans or daycare center loans or commercial loan rates
One of the biggest issues here for both independent and franchised daycare centers is that most banks will no longer consider Tenant Improvement Loans. I.e. loans to build out leased space. Instead, most banks (that are still funding loans) want the collateral of the commercial real estate.
This can create a couple of different issues for the owner or franchisor. Number one, it can run right against the business model of the franchise. For example, the franchise might have a smaller location requirement and the process of finding land, going through the zoning/permitting, constructing the facility, etc don’t make sense, based on their smaller location model.
The other issue for the individual owner is that the capital injection will normally be greater, not on a percentage basis, but rather on a dollar amount. For example, on a leased facility, the operator would be expected to come in with 10% -15% cash of the tenant improvements/equipment costs. So, if these costs were $700,000, most franchisee have been expected to come in with $70,000 -$105,000 “out of pocket”.
If on that same deal, the operator decided (by choice or forced into due to the credit crisis) to own the facility, they would need roughly $250,000 to $375,000 i.e. 10% -15% of the total project cost (In this example, say $2,500,000). This difference in dollar amount is obviously substantial and will eliminate the opportunity for many hopeful daycare center owners.
For operators that can come up with the required cash, owning the facility is often their best route, regardless of the credit crisis. For one, their monthly payment is typically lower than if they leased. This increase in cash flow is paramount for any business whether daycare or not. Also, additional benefits such as depreciation and real estate appreciation are two classic advantages of owning. And of course, every month the borrower chips away at the loan balance building long term wealth rather than simply paying rent.
All in all, there are still options out there for daycare centers financing. However many industry players will have to be open minded and flexible with adapting to the current standards if they want to get there daycare centers funded.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out commercial real estate loans or daycare center loans or commercial loan rates
Saturday, October 25, 2008
Commercial Mortgage Broker Publishes Training Book
A national commercial mortgage broker, Commercial Finance Advisors, publishes the second edition of their commercial mortgage training book. The book focuses on sales, marketing, underwriting and most importantly, prescreening commercial loan requests.
“Being an expert at pre-screening deals is critical to your success as a broker.” President, Jeff Rauth of Commercial Finance Advisors says. “Approximately fifty percent of all commercial real estate loan requests are simply not doable, maybe 70% in this market. Aspiring commercial brokers that work on these deals will waste weeks or even months on loans that have zero change of closing. You need to be able to look at a deal and figure out in the beginning if its doable and if you want to work on it or pass. We discuss this in depth.”
The book offers a unique perspective from the “front lines” of the commercial mortgage broker’s point of view. Again topics include such as sales, marketing, underwriting and pre screening deals.
Commercial Finance Advisors is a national commercial mortgage broker that focuses on commercial loans from $400,000 to $5,000,000. They also have an online store where they sell fee agreements, training materials and dvds, etc.
“Being an expert at pre-screening deals is critical to your success as a broker.” President, Jeff Rauth of Commercial Finance Advisors says. “Approximately fifty percent of all commercial real estate loan requests are simply not doable, maybe 70% in this market. Aspiring commercial brokers that work on these deals will waste weeks or even months on loans that have zero change of closing. You need to be able to look at a deal and figure out in the beginning if its doable and if you want to work on it or pass. We discuss this in depth.”
The book offers a unique perspective from the “front lines” of the commercial mortgage broker’s point of view. Again topics include such as sales, marketing, underwriting and pre screening deals.
Commercial Finance Advisors is a national commercial mortgage broker that focuses on commercial loans from $400,000 to $5,000,000. They also have an online store where they sell fee agreements, training materials and dvds, etc.
Thursday, October 23, 2008
Commercial Mortgage Refinancing
There are many pitfalls that can eliminate or create problems on a commercial mortgage refinance. Whether or not your particular situation will qualify, depends on several factors. Understanding your potential loans strengths and weaknesses will save you time and ensure your best chance of a successful commercial refinance. Below are some basic questions and concepts to keep in mind regarding your commercial mortgage refinance.
Commercial Mortgage Refinancing - Ownership
First, how long have you owned the subject property? Has it been less than 12 months? The lender will use the purchase price plus any documentable improvements you’ve put into the property – not the appraised value. Many borrowers are often surprised by this, and this rule is getting more and more prevalent as the credit crisis continues. It’s often referred to as a seasoning issue. For example, if you bought the subject property 9 months ago, and put down 20%, you will not have sufficent equity, even if you’re convinced you “stole” the property. The banks will look at your loan request at 80% and most will only consider commercial mortgage loans refinances at 75% loan to value or less.
Commercial Mortgage Refinance – Value
Related to above, value or more specifically to commercial mortgage refinancing, loan to value is becoming more and more important. Obviously most banks have increased their loan to value standards. For example most banks wouldn’t go beyond 80% -75% on a commercial mortgage refinance a year ago. Now 65% - 75% is the norm. For example if you purchased a property 5 years ago with 85% financing and now you can only get 70% financing on your commercial refinance AND the value has decreased, you’ve got a problem.
In addition, the problem is dynamic in that commercial real estate values are tied to financing.
For example the debt coverage ratio (which is a measure of the properties/business cash flow) has a direct impact on the level of debt that can be placed on the property. Most buyers for example (on a purchase) are only interested in putting 20 -25% cash into a property as their down payment. If they have to put more into the deal, just so the property cash flows, many buyers will just come to the conclusion the property is overpriced. So the seller will have to drop the price in order for buyers to be interested and in order to get financing.
If the current owner has a 30 year amortization schedule, and the buyer can only find 20 year financing, there will be a cash flow issue and the only way to overcome this is by 1. The buyer brings in a higher down payment or 2. The seller reduces the price. This sale will be registered with appraisal companies and have an impact on the general commercial real estate values in the properties city.
Commercial Mortgage Refinance, Current terms
What are your current mortgage terms? Are you refinancing because you want a lower rate? Longer amortization and or fixed period? Want to pull cash out? Or do you have a ballooning loan? One of the biggest questions to ask yourself is, “what are my prepayment penalty?” This clause can kill your deal.
Prepayments come in a couple of different forms. Some are fixed or declining but all are tied by a percentage to the existing loan balance for a certain amount of years. For example a 5% flat, 5 year prepayment is common. Another example is a 5% declining. Meaning 5% in the first year, 4% in the second years… down to zero.
Lockouts are another issue. They are a form of prepayment penalties but are normally harsher.
For example on a 3 year lock out you would owe the lender 3 years worth of interest if you were to sell/refinance the property. Which often, adds up to hundreds of thousands of dollars or more depending on the loan amount.
Commercial Mortgage Refinancing, Property Charteristic
What type of commercial property are you refinancing? Different building types get of vastly different terms. 75% loan to value on a restaurant refinance will not fund, while a 75% loan top value on an office building will.
If your business occupies some of the space, what percentage? Is it more than 25%? Is it more than 50%? Many lenders will consider it an owner occupied deal if you’re in more than 25%. Virtually all lenders consider it owner occupied if your business occupies more than 51% of the subject building, which will often give you better terms.
Despite the credit crisis commercial mortgage refinancing is still viable. Take your time and work with experienced professional to make sure you get the best terms available.
Have you checked out our STORE for commercial mortgage brokers
Commercial Mortgage Refinancing - Ownership
First, how long have you owned the subject property? Has it been less than 12 months? The lender will use the purchase price plus any documentable improvements you’ve put into the property – not the appraised value. Many borrowers are often surprised by this, and this rule is getting more and more prevalent as the credit crisis continues. It’s often referred to as a seasoning issue. For example, if you bought the subject property 9 months ago, and put down 20%, you will not have sufficent equity, even if you’re convinced you “stole” the property. The banks will look at your loan request at 80% and most will only consider commercial mortgage loans refinances at 75% loan to value or less.
Commercial Mortgage Refinance – Value
Related to above, value or more specifically to commercial mortgage refinancing, loan to value is becoming more and more important. Obviously most banks have increased their loan to value standards. For example most banks wouldn’t go beyond 80% -75% on a commercial mortgage refinance a year ago. Now 65% - 75% is the norm. For example if you purchased a property 5 years ago with 85% financing and now you can only get 70% financing on your commercial refinance AND the value has decreased, you’ve got a problem.
In addition, the problem is dynamic in that commercial real estate values are tied to financing.
For example the debt coverage ratio (which is a measure of the properties/business cash flow) has a direct impact on the level of debt that can be placed on the property. Most buyers for example (on a purchase) are only interested in putting 20 -25% cash into a property as their down payment. If they have to put more into the deal, just so the property cash flows, many buyers will just come to the conclusion the property is overpriced. So the seller will have to drop the price in order for buyers to be interested and in order to get financing.
If the current owner has a 30 year amortization schedule, and the buyer can only find 20 year financing, there will be a cash flow issue and the only way to overcome this is by 1. The buyer brings in a higher down payment or 2. The seller reduces the price. This sale will be registered with appraisal companies and have an impact on the general commercial real estate values in the properties city.
Commercial Mortgage Refinance, Current terms
What are your current mortgage terms? Are you refinancing because you want a lower rate? Longer amortization and or fixed period? Want to pull cash out? Or do you have a ballooning loan? One of the biggest questions to ask yourself is, “what are my prepayment penalty?” This clause can kill your deal.
Prepayments come in a couple of different forms. Some are fixed or declining but all are tied by a percentage to the existing loan balance for a certain amount of years. For example a 5% flat, 5 year prepayment is common. Another example is a 5% declining. Meaning 5% in the first year, 4% in the second years… down to zero.
Lockouts are another issue. They are a form of prepayment penalties but are normally harsher.
For example on a 3 year lock out you would owe the lender 3 years worth of interest if you were to sell/refinance the property. Which often, adds up to hundreds of thousands of dollars or more depending on the loan amount.
Commercial Mortgage Refinancing, Property Charteristic
What type of commercial property are you refinancing? Different building types get of vastly different terms. 75% loan to value on a restaurant refinance will not fund, while a 75% loan top value on an office building will.
If your business occupies some of the space, what percentage? Is it more than 25%? Is it more than 50%? Many lenders will consider it an owner occupied deal if you’re in more than 25%. Virtually all lenders consider it owner occupied if your business occupies more than 51% of the subject building, which will often give you better terms.
Despite the credit crisis commercial mortgage refinancing is still viable. Take your time and work with experienced professional to make sure you get the best terms available.
Have you checked out our STORE for commercial mortgage brokers
Friday, October 10, 2008
Survival Tactic - Commercial Hard Money
Commercial hard money loans should only be thought of as an option after you have exhausted all other sources and have come to the conclusion that you just won’t qualify for a conventional commercial real estate loan. The choice, though hard for many borrowers, is normally simple. Either lose your business or building or accept the terms offered by the hard money lender.
It’s a survival tactic. You’re giving yourself something very valuable in exchange for the expense of the loan – time. Time to repair, time to restore whatever the issues are. Whether it’s getting the business back to profitability, paying down debt, time to continue leasing out the property, restore personal credit, etc. We see so many borrowers let the egos get in the way and end up turning this into something it’s not.
What it really is is an act of courage that you are facing the problems head on and doing everything you can to solve it. And no matter how bad it is, you can still have some pride in that. Many people simple hide and let the problems overwhelm them.
Remember the old saying of comparing apples to apples. You just cannot compare a hard money loan to a bank loan you may have been eligible for 3 years ago. You have to be realistic and compare it to your current alternatives. And here’s what they are 1. Take on a partner 2. Lose the business 3. lose the building.
Say you have a building worth $2,000,000 and owe $500,000. You have $1,500,000 of equity you stand to lose vs. paying for an expensive loan. Or say you take on the wrong partner because you are pressed for time and need cash. Now you stand to lose whatever equity you have in the business, building and have additional legal issues by having to get rid of the partner. And even if it works out with the partner you will likely have to give up much more to the partner than pay in fees to the lender.
Most hard money lenders charge 6% on the front of the loan, which is obviously very expensive. Say, using the numbers above you wanted an additional $500,000 to bring the total loan balance to $1,000,000. You would pay $60,000 in fees… Versus losing $1,500,000. It’s hard, but simple. Don’t let your ego get in the way of this one. Face the problem head on, and fix it.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan a national commercial mortgage brokerage firm. He also has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $5.
It’s a survival tactic. You’re giving yourself something very valuable in exchange for the expense of the loan – time. Time to repair, time to restore whatever the issues are. Whether it’s getting the business back to profitability, paying down debt, time to continue leasing out the property, restore personal credit, etc. We see so many borrowers let the egos get in the way and end up turning this into something it’s not.
What it really is is an act of courage that you are facing the problems head on and doing everything you can to solve it. And no matter how bad it is, you can still have some pride in that. Many people simple hide and let the problems overwhelm them.
Remember the old saying of comparing apples to apples. You just cannot compare a hard money loan to a bank loan you may have been eligible for 3 years ago. You have to be realistic and compare it to your current alternatives. And here’s what they are 1. Take on a partner 2. Lose the business 3. lose the building.
Say you have a building worth $2,000,000 and owe $500,000. You have $1,500,000 of equity you stand to lose vs. paying for an expensive loan. Or say you take on the wrong partner because you are pressed for time and need cash. Now you stand to lose whatever equity you have in the business, building and have additional legal issues by having to get rid of the partner. And even if it works out with the partner you will likely have to give up much more to the partner than pay in fees to the lender.
Most hard money lenders charge 6% on the front of the loan, which is obviously very expensive. Say, using the numbers above you wanted an additional $500,000 to bring the total loan balance to $1,000,000. You would pay $60,000 in fees… Versus losing $1,500,000. It’s hard, but simple. Don’t let your ego get in the way of this one. Face the problem head on, and fix it.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan a national commercial mortgage brokerage firm. He also has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $5.
Wednesday, October 8, 2008
Commercial Hard Money – Hay Day
Commercial hard money is in its “hay day” at the moment. As conventional sources continue to tighten their underwriting guidelines commercial hard money is, for the most part flourishing. Never before have private money lenders been in such a strong position to “cherry pick” deals. In fact, many commercial hard money lenders are raising their underwriting criteria to the point that they match previous conventional guidelines.
Many commercial loan requests that fit the conventional underwriting box 6 months ago, now find that there only viable option is hard money. Borrowers are often shocked and or angry at the terms offered. Interests in the teens with 3-6% points are market. You can’t blame the borrower for being outraged. It just seems ridiculous.
But the reality for many borrowers that have already exhausted all other options, face either losing their property, losing their business (or both) or have to take on a partner. All of these alternatives are more expensive, often much more expensive, than a commercial hard money loan. For example if you have a building worth $2,000,000 with an existing $500,000 loan and are requesting a $1,000,000 loan amount, you’ll pay out $30,000 – to $60,000 in fees vs. losing $1,500,000 in equity. It’s that simple.
Taking on a partner is often thought of as a viable alternative. However, there are many challenges with this strategy as well. First of all you have to find a partner... that has cash and that will blend with the company and your business goals. How much control and ownership of the property and business will you have to give up? The math is as simple as the above example. Give up 50% or pay 6% in fees…
Nobody likes the terms offered. Hard money lenders have much at stake as well and stand to lose millions on one bad deal. Taking borrowers through foreclosure is no cake wake and is very expensive for the lenders, which is a very likely outcome that they often face. Commercial Hard money will likely remain in a very strong position for as long as our credit crisis continues.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out
Many commercial loan requests that fit the conventional underwriting box 6 months ago, now find that there only viable option is hard money. Borrowers are often shocked and or angry at the terms offered. Interests in the teens with 3-6% points are market. You can’t blame the borrower for being outraged. It just seems ridiculous.
But the reality for many borrowers that have already exhausted all other options, face either losing their property, losing their business (or both) or have to take on a partner. All of these alternatives are more expensive, often much more expensive, than a commercial hard money loan. For example if you have a building worth $2,000,000 with an existing $500,000 loan and are requesting a $1,000,000 loan amount, you’ll pay out $30,000 – to $60,000 in fees vs. losing $1,500,000 in equity. It’s that simple.
Taking on a partner is often thought of as a viable alternative. However, there are many challenges with this strategy as well. First of all you have to find a partner... that has cash and that will blend with the company and your business goals. How much control and ownership of the property and business will you have to give up? The math is as simple as the above example. Give up 50% or pay 6% in fees…
Nobody likes the terms offered. Hard money lenders have much at stake as well and stand to lose millions on one bad deal. Taking borrowers through foreclosure is no cake wake and is very expensive for the lenders, which is a very likely outcome that they often face. Commercial Hard money will likely remain in a very strong position for as long as our credit crisis continues.
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out
Friday, October 3, 2008
Commercial Mortgages – Ignore Your Way Through It
If you’re a commercial mortgage originator like myself, my unsolicited advice to you is to ignore your way through this giant heaping mess. “Ignore your way through it”, it’s my new slogan. Perhaps I’ll make a bumper sticker.
As the Politician’s continue to do what they do best, cover their own ass to protect their jobs, we have to continue on. To me it’s comical that no one has the courage to remind the politicians or the people that they pushed the fair housing acts, and other government sponsored program that promoted high leverage to begin with. The SBA programs are another example.
What about all this talk of the “greedy, evil and corrupt” lenders that pushed stated income loans and the like on the poor innocent borrowers. Give me a break, like the borrowers are little lambs that are complete victims. I’ve been in this business for 10 years and have seen it all, including many borrowers that have attempted to commit fraud under my license. Most borrowers know exactly what they are doing! Many of these borrowers where not “mortgagable” and should be grateful they had a shot at home ownership.
There are many people out there that lost their jobs or have had serious medical issues and the like; I’m not referring to these people. I’m talking about the masses of borrower’s that defaulted, simply because they borrowed more than they could afford. Or because they went underwater.
Guess what? If you took on a loan you couldn’t afford in the first place, than you screwed up. You’re responsible for it! If you make $50,000 a year and took on a $400,000 mortgage just because you could get a loan, you are 100% responsible for that mistake. And now we as a country are paying for it. And we don’t want to pay for it.
We are a nation that has been living on borrowed time and borrowed money and now we’re paying for it. The idea of living within our means is on the comeback. I’m confident that had the banks been left alone, they’d still be doing 80% financing max and this issue would not exist.
As the Politician’s continue to do what they do best, cover their own ass to protect their jobs, we have to continue on. To me it’s comical that no one has the courage to remind the politicians or the people that they pushed the fair housing acts, and other government sponsored program that promoted high leverage to begin with. The SBA programs are another example.
What about all this talk of the “greedy, evil and corrupt” lenders that pushed stated income loans and the like on the poor innocent borrowers. Give me a break, like the borrowers are little lambs that are complete victims. I’ve been in this business for 10 years and have seen it all, including many borrowers that have attempted to commit fraud under my license. Most borrowers know exactly what they are doing! Many of these borrowers where not “mortgagable” and should be grateful they had a shot at home ownership.
There are many people out there that lost their jobs or have had serious medical issues and the like; I’m not referring to these people. I’m talking about the masses of borrower’s that defaulted, simply because they borrowed more than they could afford. Or because they went underwater.
Guess what? If you took on a loan you couldn’t afford in the first place, than you screwed up. You’re responsible for it! If you make $50,000 a year and took on a $400,000 mortgage just because you could get a loan, you are 100% responsible for that mistake. And now we as a country are paying for it. And we don’t want to pay for it.
We are a nation that has been living on borrowed time and borrowed money and now we’re paying for it. The idea of living within our means is on the comeback. I’m confident that had the banks been left alone, they’d still be doing 80% financing max and this issue would not exist.
Gas Station Loans Have Gotten the Worst of It
Many businessmen that are looking to either refinance their gas station loan or purchase a new facility are now facing serious challenges with securing capital. And similar to the bride that leaves you at the altar, the SBA has all but pulled out of this sector that prior too was the back bone loan to the industry. At the end of the day you could normally rely on the SBA loans to get something done.
Now this isn’t to say that the SBA has pulled out completely, they’ve just made it so cumbersome and expensive on the front end for the borrower that, for many it’s just not worth it. Take for example, that all deals have to have a full phase two completed, no matter the age.
Say the property is a 2 years old, with state of the art tanks and equipment it doesn’t matter. They want a full phase 2 which runs the borrower at least $10,000. If any issues (or hints of issues) are discovered, the costs can easily exceed $100,000 for clean up, legal fees, consulting fees, etc.
Local and regional banks normally either have an appetite for this industry or not. Due to the complexity of the deals, banks just don’t dabble in this sector. What we’re seeing is that many established players have or are pulling out of gas station funding. They’re shifting their focus to more general properties like office, retail etc, or just waiting to see what happens with Wall Street before they throw any more cash around.
Where’s the happy ending in the commercial mortgage industry? There are still a few portfolio lenders (and SBA lenders) that have an established niche and continue on. Borrowers should be spending their time trying to figure out if the bank they are working with is really going to fund their deal, rather than trying to save a few basis points on rates. The question isn’t what’s your rates, its are your going to waste 3 months of my time and $10,000?
Put your detective hat on and dig deep. Figure out if the bank in questions is really serious about the project. Question like “how many gas station loans have you closed year to date? What is your personal outlook on the stability of the bank? What’s the banks history with gas stations loans?” Remember that the bank representative has quotas like, filled out application per week, phone calls per day, meeting per week, etc. So even if the bank loan officer doesn’t really think he can get it done he may waste your time, to protect his job.
Click here to see current commercial loan rates
Now this isn’t to say that the SBA has pulled out completely, they’ve just made it so cumbersome and expensive on the front end for the borrower that, for many it’s just not worth it. Take for example, that all deals have to have a full phase two completed, no matter the age.
Say the property is a 2 years old, with state of the art tanks and equipment it doesn’t matter. They want a full phase 2 which runs the borrower at least $10,000. If any issues (or hints of issues) are discovered, the costs can easily exceed $100,000 for clean up, legal fees, consulting fees, etc.
Local and regional banks normally either have an appetite for this industry or not. Due to the complexity of the deals, banks just don’t dabble in this sector. What we’re seeing is that many established players have or are pulling out of gas station funding. They’re shifting their focus to more general properties like office, retail etc, or just waiting to see what happens with Wall Street before they throw any more cash around.
Where’s the happy ending in the commercial mortgage industry? There are still a few portfolio lenders (and SBA lenders) that have an established niche and continue on. Borrowers should be spending their time trying to figure out if the bank they are working with is really going to fund their deal, rather than trying to save a few basis points on rates. The question isn’t what’s your rates, its are your going to waste 3 months of my time and $10,000?
Put your detective hat on and dig deep. Figure out if the bank in questions is really serious about the project. Question like “how many gas station loans have you closed year to date? What is your personal outlook on the stability of the bank? What’s the banks history with gas stations loans?” Remember that the bank representative has quotas like, filled out application per week, phone calls per day, meeting per week, etc. So even if the bank loan officer doesn’t really think he can get it done he may waste your time, to protect his job.
Click here to see current commercial loan rates
Wednesday, October 1, 2008
Triple Net Deals, Financing Options
The overall credit constraints have restricted all commercial mortgages and triple net financing is no exception. More important know than ever is the strength of the tenant(s), global income, post close liquidity and other traditional underwriting criteria that I’ll discuss here.
“Post close liquidity” seems to be the new buzz word of the day (sounds pretty slick, right?). But what the lender wants to know is, after the buyer purchases the property and injects 30% - 40% cash into the deal, how much cash will he have left over? Is he throwing everything he’s got into the deal? Many banks now want to see between 4 -6 months of reserves. Meaning, 4 to 6 months of cash, that could be used to pay the mortgage if the tenant defaulted on the lease. Of course the level of this restraint is tied directly to the strength of the tenant.
“Who’s the tenant? Are we talking a regional player with 25 locations or a public company? What are their trends? Are gross revenues over the last 3 years declining, stable or increasing? How are the trends of the net income? Again stable, declining, or increasing? The funding bank will want to see three years of business returns and year to tax financials at a minimum. These questions are just the beginning. The tenant is in a way, the real borrower and will be underwritten accordingly.
Loan to values have been one of the more obvious restrictions. A year ago we were closing fast food restaurants (like KFC, Arby's, Taco Bell's) at 75% loan to value. Now we’re seeing 65% max, with most lenders at 60%. Couple this with declining cap rates in many markets and we’ve got a bit of a problem.
Debt coverage ratios have also been bumped from a 1.2 to a 1.3 by most sources. Perhaps a little more sneaky, is that many banks have also bumped up underwriting vacancy and management percentages which further reduces the NOI. Traditional banks would use 2-3% for vacancy (even if there isn’t any) and 2-3% for management (even if the borrower manages the property himself). These percentages in many cases have been risen to 3 -5% on both.
Global income is more and more looked at. Many sources didn’t really look that hard at the borrower’s personal financial situation. Now personal debt/expenses and other sources of income beside the property are examined. Overall, what’s the level of cash flow that the borrower has?
NNN Loans are still doable! They are still closing, but as discussed, having a 20 year nnn lease in place is just the starting point. Banks will want to scrutinize all aspects of the deal so they can be more confident of the risks involved. Be prepared and have your package ready to go and clean up all issues (like your credit score) before you submit your file to a bank.
“Post close liquidity” seems to be the new buzz word of the day (sounds pretty slick, right?). But what the lender wants to know is, after the buyer purchases the property and injects 30% - 40% cash into the deal, how much cash will he have left over? Is he throwing everything he’s got into the deal? Many banks now want to see between 4 -6 months of reserves. Meaning, 4 to 6 months of cash, that could be used to pay the mortgage if the tenant defaulted on the lease. Of course the level of this restraint is tied directly to the strength of the tenant.
“Who’s the tenant? Are we talking a regional player with 25 locations or a public company? What are their trends? Are gross revenues over the last 3 years declining, stable or increasing? How are the trends of the net income? Again stable, declining, or increasing? The funding bank will want to see three years of business returns and year to tax financials at a minimum. These questions are just the beginning. The tenant is in a way, the real borrower and will be underwritten accordingly.
Loan to values have been one of the more obvious restrictions. A year ago we were closing fast food restaurants (like KFC, Arby's, Taco Bell's) at 75% loan to value. Now we’re seeing 65% max, with most lenders at 60%. Couple this with declining cap rates in many markets and we’ve got a bit of a problem.
Debt coverage ratios have also been bumped from a 1.2 to a 1.3 by most sources. Perhaps a little more sneaky, is that many banks have also bumped up underwriting vacancy and management percentages which further reduces the NOI. Traditional banks would use 2-3% for vacancy (even if there isn’t any) and 2-3% for management (even if the borrower manages the property himself). These percentages in many cases have been risen to 3 -5% on both.
Global income is more and more looked at. Many sources didn’t really look that hard at the borrower’s personal financial situation. Now personal debt/expenses and other sources of income beside the property are examined. Overall, what’s the level of cash flow that the borrower has?
NNN Loans are still doable! They are still closing, but as discussed, having a 20 year nnn lease in place is just the starting point. Banks will want to scrutinize all aspects of the deal so they can be more confident of the risks involved. Be prepared and have your package ready to go and clean up all issues (like your credit score) before you submit your file to a bank.
Automotive Property Loans – Credit Crisis
If you own an automotive property or are thinking of buying one, such as an oil change facility, collision shop or general auto repair, you’ve got to have you’re “ducks in a row” as they say, to get the loan closed in this market.
Believe me I’m sick of hearing about the credit crisis and sick of “warning” my clients. But as the credit crisis persists, you need to start thinking "clean". In other words your loan requests have to be strong or you won’t be getting any term sheets from banks. They’ll simply pass on your deal. One of the more common issues is bad credit or mediocre credit. 6 months ago you could get away with a 620 and still have some good options. Now you really need a 680. Issues like late pays or an excessive amount of debt, even with good scores, will now kill most options.
Another common issue is so many automotive property owners don’t show enough income to qualify. The idea on a bigger scale is to avoid as much taxes as possible, but when you go to get a loan, you’ve got a problem. Whatever money you saved by not paying tax you’ll “pay back” to a lender in the form of a higher interest rate or by not getting a loan at all. Pay now or pay later. Tell to your CPA about this he may be able to help you create more noncash items like deprivation so that you can have the best of both sides – low taxes and a good rate.
Bottom line, if you want a decent loan, you’ve got to show a decent amount of income in this market. More exactly, you’ll need to hit a Debt Coverage Ratio of a 1.3, which has gone up from a 1.2 (some banks used to go down to a 1.1). What this ratio means, is that you’ll need to show $1.30 of net income, for every $1 of proposed mortgage payments. So after you pay all of your expenses and pay the mortgage you’ll still have $.30 left over…
Automotive property loans are still doable! But you’re going to have to be more serious about pulling them off. And (I’m not just trying to up sell you) you should be more concerned about if the funding bank is really going to close vs. picking one bank over the other to save 10 basis points on your commercial rate. Prepare in the beginning and have your loan package look as clean as possible BEFORE you submit it to a bank. You don’t want to have to “explain away” a single item if you can avoid it.
Believe me I’m sick of hearing about the credit crisis and sick of “warning” my clients. But as the credit crisis persists, you need to start thinking "clean". In other words your loan requests have to be strong or you won’t be getting any term sheets from banks. They’ll simply pass on your deal. One of the more common issues is bad credit or mediocre credit. 6 months ago you could get away with a 620 and still have some good options. Now you really need a 680. Issues like late pays or an excessive amount of debt, even with good scores, will now kill most options.
Another common issue is so many automotive property owners don’t show enough income to qualify. The idea on a bigger scale is to avoid as much taxes as possible, but when you go to get a loan, you’ve got a problem. Whatever money you saved by not paying tax you’ll “pay back” to a lender in the form of a higher interest rate or by not getting a loan at all. Pay now or pay later. Tell to your CPA about this he may be able to help you create more noncash items like deprivation so that you can have the best of both sides – low taxes and a good rate.
Bottom line, if you want a decent loan, you’ve got to show a decent amount of income in this market. More exactly, you’ll need to hit a Debt Coverage Ratio of a 1.3, which has gone up from a 1.2 (some banks used to go down to a 1.1). What this ratio means, is that you’ll need to show $1.30 of net income, for every $1 of proposed mortgage payments. So after you pay all of your expenses and pay the mortgage you’ll still have $.30 left over…
Automotive property loans are still doable! But you’re going to have to be more serious about pulling them off. And (I’m not just trying to up sell you) you should be more concerned about if the funding bank is really going to close vs. picking one bank over the other to save 10 basis points on your commercial rate. Prepare in the beginning and have your loan package look as clean as possible BEFORE you submit it to a bank. You don’t want to have to “explain away” a single item if you can avoid it.
Tuesday, September 30, 2008
SBA Commercial Loans – Why the Drop in Funding?
As the credit crisis began a year ago, many industry professionals predicted that the SBA commercial loans would become much more popular as banks would become more and more conservative and seek the guarantee that the SBA provides. However that has just not been the case. It seemed to be such a “no brainer” that banks would want the government assurance in such a time of uncertainty for their commercial real estate loans.
But year to date in 2008 we’re down from 2007. And not just down from what people predicted, but down in terms of both number of loans closed and aggregate dollar amount of closed loans. Why? Is it just another symptom of the credit crisis or something else?
Interestingly the SBA seemed quite proud to announce the streamlining of their monster procedural reference book for lenders and banks at the end of 2007. With over 800 pages, and in general legalese type language it was far from user friendly. They announced the new version in the beginning of the year and it was chopped down to fewer than 300 pages. Seemingly, a major improvement.
However despite their efforts the new manual has been widely criticized and has created more confusion as to what the rules are. Many SBA lenders in fear that they might get stuck with loans that the SBA wouldn’t guarantee have shied away from the SBA programs until the issues where better resolved. Basic questions, like whose names have to be on the appraisal on a participation loan, for example, have been left unanswered. All in all, it just creates more clutter and uncertainty.
The timing on this is obviously terrible(in no fault to the folks at the SBA), as the commercial mortgage industry in general is on its knees for a reliable source of capital. Ironically, what was considered the safety net, has been weakened by this blunder.
Click here to see current commercial loan rates
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out commercial mortgage loans or restaurant loans
But year to date in 2008 we’re down from 2007. And not just down from what people predicted, but down in terms of both number of loans closed and aggregate dollar amount of closed loans. Why? Is it just another symptom of the credit crisis or something else?
Interestingly the SBA seemed quite proud to announce the streamlining of their monster procedural reference book for lenders and banks at the end of 2007. With over 800 pages, and in general legalese type language it was far from user friendly. They announced the new version in the beginning of the year and it was chopped down to fewer than 300 pages. Seemingly, a major improvement.
However despite their efforts the new manual has been widely criticized and has created more confusion as to what the rules are. Many SBA lenders in fear that they might get stuck with loans that the SBA wouldn’t guarantee have shied away from the SBA programs until the issues where better resolved. Basic questions, like whose names have to be on the appraisal on a participation loan, for example, have been left unanswered. All in all, it just creates more clutter and uncertainty.
The timing on this is obviously terrible(in no fault to the folks at the SBA), as the commercial mortgage industry in general is on its knees for a reliable source of capital. Ironically, what was considered the safety net, has been weakened by this blunder.
Click here to see current commercial loan rates
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out commercial mortgage loans or restaurant loans
Cash Wash Loans – Now
If you own a cash wash and or are thinking of buying one, you’re going to want to make sure you’re prepared to deal with the new market realities for getting a car wash loan. Bottom line is that the property is going to have to show a good income and you as the borrower will have to accept an adjustable rate mortgage (most of the time).
As far as the cash flow is concerned the car wash will have to hit a debt coverage ratio of a 1.3 in order to be considered by the vast majority of lenders. Meaning that for every dollar of mortgage payments, the borrower will have to prove $1.30 of net income (before the mortgage) to qualify. So after the borrower pays all expenses and the proposed mortgage he will have $.30 left over. This income will have to be documented by both 3 years of tax returns (business and personal) and year to date financial statements (profit & loss and balance sheet).
Most banks and lenders that look at car washes want to take the deal through the SBA. If they’ll take a crack at it in house and go conventional, you’re often looking at a 15 or maybe a 20 year amortization schedule, which tightens the cash flow considerably. The cash flow on the property will have to be really strong to still meet the 1.3 on a 15 year amortization schedule.
So as far as the SBA is concerned your most likely (like 99% of the time) looking at an adjustable rate mortgage that’s amortized over 25 years. The program offered will be the infamous SBA 7a loan that is the most popular SBA product out there though it tends to get some bad press. The 3 biggest complaints are 1. (The obvious) that the rate is adjustable 2. The SBA fee is expensive at 2.75% 3. That the SBA process is still cumbersome, though many improvements have been made.
Overall, the borrower is going to want to make sure the deal is clean and that they do everything they can in the beginning to fix any issues (like bad credit), before they submit the file.
Click here to see current commercial loan rates
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out commercial mortgage loans or restaurant loans
As far as the cash flow is concerned the car wash will have to hit a debt coverage ratio of a 1.3 in order to be considered by the vast majority of lenders. Meaning that for every dollar of mortgage payments, the borrower will have to prove $1.30 of net income (before the mortgage) to qualify. So after the borrower pays all expenses and the proposed mortgage he will have $.30 left over. This income will have to be documented by both 3 years of tax returns (business and personal) and year to date financial statements (profit & loss and balance sheet).
Most banks and lenders that look at car washes want to take the deal through the SBA. If they’ll take a crack at it in house and go conventional, you’re often looking at a 15 or maybe a 20 year amortization schedule, which tightens the cash flow considerably. The cash flow on the property will have to be really strong to still meet the 1.3 on a 15 year amortization schedule.
So as far as the SBA is concerned your most likely (like 99% of the time) looking at an adjustable rate mortgage that’s amortized over 25 years. The program offered will be the infamous SBA 7a loan that is the most popular SBA product out there though it tends to get some bad press. The 3 biggest complaints are 1. (The obvious) that the rate is adjustable 2. The SBA fee is expensive at 2.75% 3. That the SBA process is still cumbersome, though many improvements have been made.
Overall, the borrower is going to want to make sure the deal is clean and that they do everything they can in the beginning to fix any issues (like bad credit), before they submit the file.
Click here to see current commercial loan rates
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He has a STORE for commercial loan brokers. Contracts, spreadsheets, books, etc. Products starting at $4.95! Check it out commercial mortgage loans or restaurant loans
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