Commercial Loans for your business needs
Generally, small business owners need commercial loans to buy a business with real estate, refinance a commercial real estate asset (like a gas station, strip mall, industrial warehouse, office building, motel, hotel, etc.) or refinance a business with real estate. However, the complexity of commercial loans makes deal structuring difficult. Here's our guide to commercial loans:
Traditional lenders normally do not lend out commercial loans and non-traditional banks are less known among the small business community. Whole sale banks specialize in funding the larger real estate deals and mainly work with brokers on commercial loans above $1 million. On deals including goodwill with the real estate component, small businesses should apply for an SBA loan. Unfortunately, guarantee fees range anywhere from 1 percent to 3 percent of the commercial loan amount.
Commercial Loan Packaging
Using income expense figures and the rent roll of the property, business owners can decide whether the deal should be full doc or stated. Full doc means that the income of the property supports the mortgage payment. Typically, institutions lend at lower rates when borrowers present their case with full documentation. With stated deals, lenders judge the case generally by the value of the property. In this case interest rates are higher.
Commercial Loan Paperwork
Commercial lenders issue a provisional term sheet including an appraisal order form, environmental appraisal forms and a 1003. To qualify for a commercial loan, the borrower must provide personal information including estimations of assets and liabilities.
An MAI (Members of Appraiser Institute) approved appraiser conducts an appraisal. For certain properties like gas stations and industrial warehouses, owners must schedule an environmental appraisal to check for leakages and investigate past violations before qualifying for a commercial loan.
To close the commercial loan, lenders conduct a title search into the property to check for any existing liens.
Overall, the process takes around four to five weeks and with the various appraisals required can cost $1,200 to $5,000. Closing costs can range from 1 percent to 2 percent of the commercial loan amount.