This article discusses 12 frequent issues that arise from commercial real estate loans that commercial lenders and their advisors should be aware of before it becomes too late. These issues are typical with traditional commercial real estate loan and must be avoided when feasible (special circumstances may make certain of these terms impossible).

Commercial Real Estate Loans PROBLEM Number 1 Tax Returns vs Stated Income

The majority of traditional banks require a number of decades of income tax records to be able to get commercial real estate loans. Another option is to choose the Stated Income lender which doesn't verify earnings or other assets. Most borrowers do not be eligible for a commercial loan loans if tax returns have been utilized due to the high amount of business costs (and lower net income). Many lenders that use tax returns will continue to verify income even after the loan is closed. Stated Income lenders won't take part in this method.

COMMERCIAL REAL ESTATE LOANS PROBLEM NUMBER 2: Special Purpose Properties

It's becoming more difficult to obtain commercial loans specifically for properties. Properties that don't fall within the category of retail or office structures are typically placed in this category of special purpose. This means that loans for business acquisitions for commercial properties, such as restaurants/bars or auto service companies are often difficult to locate. Commercial financing can be harder to find for these types of properties, such as funeral homes, churches nursing homes, nursing homes, or assisted living centers.

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COMMERCIAL REALESTATE LOANS Problem number 3. Recall/balloon feature

These terms are employed by banks across the world to reduce the length of commercial real estate loans by 3-7 years.

Commercial Real Estate Loans Problem number 4: Loans for short-term duration (less than 15 years)

Commercial property loans of 15 to 40 years with no recall or balloon features are available.

Commercial Real Estate Loans Problem Number 5: Up-front Fees for commitment

In the majority of cases commercial borrowers are not required to be required to pay such fees. Note that processing/retainer charges are not covered in this discussion on commitment fees. Processing/retainer costs should be seen as a normal and acceptable business practice in commercial real property loans.

COMMERCIAL REAL ESTATE LOANS PROBLEM NUMBER 6: Business Plans

In the majority of cases commercial borrowers should not make use of a lender who requires a business plan.

COMMERCIAL REAL ESTATE LOANS PROBLEM NUMBER 7: Cross-collateralization

Commercial borrowers shouldn't be required to utilize their personal assets to secure collateral to secure commercial property loans.

PROBLEM WITH COMMERCIAL REALESTATE LOANS Number 8 Securing and seasoning assets. A seasoning process for ownership.

This particular issue will not be applicable for all business lenders. If it is pertinent, you must find a lender with no the requirements for sourcing and seasoning or restrictions. Many banks have strict rules for the sourcing and seasoning of the assets or ownership in order to be eligible for commercial real mortgages. In the case of a purchase commercial lender, they will typically require documentation of the source of the down payment being made (sourcing). Commercial lenders also often require that the money must be in a particular account for a certain amount of time, usually 3 months or more (seasoning). Ownership seasoning is comparable to the seasoning of funds however, this one is a requirement for the minimum amount of time that someone has owned commercial property prior to being able to finance the home.

Commercial Real Estate Loans Problem Number 9: Requirement to fill out IRS Form 4506

IRS Form 4506 permits the lender to get taxpayer's tax return directly from IRS. The form is commonly required by traditional banks as well as other commercial lenders when it comes to business acquisition loans. Commercial borrowers who use a Stated Income lender that has only a few requirements for documentation will be able to not have to comply with this obligation.

Commercial Real Estate Loans PROBLEM NUMBER 10: Debt Servicing coverage ratio (DSCR) greater than 1.2 for the business acquisition loan

The most flexible way to DSCR for commercial property loan is to have the use of a DSCR between 1 to 1.2 however, there are exceptions that allow the use of a DSCR lower than 1.

Commercial Real Estate Loans Problem Number 11: The minimum commercial property loan size is too large for your needs in commercial mortgage.

It is not uncommon to find an initial commercial real estate mortgage requirement of between $500,000 and $1,000,000.

Commercial Real Estate Loans Problem Number 12: Excessive duration of commercial real estate loans procedure

A majority of traditional banks require three to nine months in order to close commercial mortgages. A more proactive commercial lender can complete commercial loans for real estate within the range of 45-60 days.