Navigate Commercial Real Estate Loans

A commercial real estate loan can come with some excitement, trepidation, and maybe some stress, but it doesn’t have to.

What is Commercial Real Estate

Commercial real estate, and maybe you’ve already guessed, is real estate purposed for business to include rental income, office space, and retail spaces (as the most common). Commercial real estate loans exist in wide variety and it is worth while to find a quality navigator to help you find the right fit, the right type, and the right lender.

Generally, commercial real estate loans are made to businesses, trusts, and partnerships but in some instances commercial lending is made to private individuals with the express intent to develop investment properties for resale or long term passive income. Commercial real estate loans are asset focused with a lien helping to guaranty the creditors repayment.

What is a lien?

A lien is a legal right that the owner of a property gives to the creditor. If the owner can’t fulfill the debt obligation, the creditor might be able to assume ownership of the property or asset secured by the lien. When a lender makes a loan on a commercial property they assume the risk of default or devaluation, a lien helps the lender mitigate risk and offer reasonable terms.

It’s common practice that the lender will require a lien and normally a down payment. Most commercial lenders look for 10% down and specific loan to value ratios. Accurate valuation is the first critical step in securing your financing. Why? Commercial lenders consider the property first and the borrower second, after all it’s the property and the lien that guarantees the lenders repayment in the case of default.

Repayment Terms and Schedule

There are two general terms to know in the case of “long” term loans. Amortization and balloon payments. Typically a commercial real estate loan will carry an amortization period where principle and interest payments are due over a longer period with the remaining balance due at the end. Balloon commercial real estate loans are given for periods of 5, 7, and 10 years where the remaining balance due at the end of the schedule.

Not to worry

Most commercial lenders normally offer refinance loans and cash out refinance loans where equity in the property has increased over the course of the schedule. Known as a cash out refi, lenders allow for borrowing against the real value of the property allowing the original loan to be re-paid and cash taken out against the equity.

Interest rates and fees

Most commercial loans will carry rates that are higher than traditional mortgages and rates can vary based on the property type, location, and the loan to value (LTV) ratio. Debt Service Coverage Ratio (DSCR) has become a more popular metric in recent lending. This means the property or business produces enough cash flow to cover expenses and service the new debt.

Commercial real estate loans also carry additional fees the residential borrower may not be familiar with. Accredited lenders will normally require an independent appraisal, often a title search, survey and legal fees, and origination fees. Normal practice is for the lender to include these fees at closing, but sometimes require payment at application, especially at the point of appraisal and title search.

How to apply for a commercial real estate loan

Property value and financials matter. In cases of rent producing properties, lenders will require profit and loss statements for a set number of years, tax returns, income statements and rent roles, bank statements, and personal credit history for any associated borrowers, partners, or affiliates listed on the loan.

Other business properties, such as an owner occupied property, will require business financials similar to the above minus rent roles and profit and loss statements. The business may need to show 2 to 5 years of tax returns, be able to demonstrate adequate cash flow with bank statements, and corporate filings.

Why it’s important to seek consultation as you prepare to take on a commercial real estate loan.

Fees can add up quickly, you’d like to have a reasonable assumption that you’ll get approved before spending out of pocket to meet lenders needs. The right partnership can save you time and money in being well prepared and assisting in determining eligibility and the likelihood of an approval before you invest in application, legal, and processing fees.

The right partner will also have the right relationships to talk to lenders about your loan before you ever apply. It pays to know how specific lenders evaluate potential borrowers and properties and who would be most prepared to offer the best terms.

Its likely that running your business takes most of your time, outsourcing the lender search and comparing terms keeps you focused on what you do best. The process of selecting the right lender can be daunting, especially if you’ll start your search from scratch. Relying on the experience and network of a good partner saves you time.

When your ready to borrow we’re here. We will help you navigate the waters and get your loan request in front of the lender with the best terms, that specialize in your needs, and the lenders that are trending on your property and loan type. Contact our commercial loan consultants and get a free no obligation assessment.

SBA Loans Explained

Maybe the most under/misunderstood commercial finance product is the SBA Loan.

Did you know the SBA doesn’t make loans?

That’s right, the SBA is a government-run program to promote small business through the guarantee of loans for business operators. Not only that, there are different types of SBA Loans and in some situations, you can get an SBA approved with no money down.

In the video below Phil Dushey, a 30 year veteran of commercial finance, and the founder of Global Financial Training explains the SBA loan and how to use it in successful strategies.

Augustine Capital Solutions is proud to team up with Global Financial and Phil Dushey to offer preferred lending in SBA Loans and other financial products that allows us to bring more value to our clients.

Contact Us and let us guide you to a successful SBA loan submission with our network of preferred lenders that often get our loans approved in 30 days or less.

SBA Loan Getting Approved

The Small Business Association is a government agency that offers assistance in many ways to small businesses. One of the ways it offers help is through its multiple SBA loan programs. These are basically loans that you can get through your typical lenders, but they are backed or guaranteed by the SBA. This lowers the risk for the lender, making it easier for small businesses to get loans.

To qualify for this type of loan, you need to meet the requirements of the bank and the SBA. Here are six steps you can follow to help you get approved.

Step 1: Get Documents Together

Doing this first and knowing what documents you’ll need will get you farther, faster, then any other item on your list. You’ll need these throughout the process to prepare and apply so getting it done up front irons out your internal process as well. You’ll need your financials as well as your entity and organizational documents including identification and filings. Remeber to include all your business partners.

Step 2: Decide on a Lender

Choose your lender wisely and pay attention to the fine print. Matching your business to the right kind of lender will greatly improve your chances for approval. Established relationships are great, but sometimes you’ll need to make new ones. Shop smaller and community banks they can be more flexible with their lending and are more likely to take on your loan.

Step 3: Meet the Requirements

You’ll have to meet the requirements of the SBA  and the requirements of your lender. The SBA can be very specific on the type of business, the type of loan they will guarantee, and the amount to lend. The SBA really focuses on businesses that normally qualify for traditional bank loans so its necessary to reduce risk wherever possible. You’ll also need to make sure you meet the requirements of your chosen lending institution, these are not always the same.

Step 4: Have A Business Plan

Paint a clear picture of your business, your industry, your market and your experience. Make sure to be detailed and form a vision of how your business will be profitable and handle the risk and challenges that are sure to be common in your marketplace. It may be beneficial to seek professional help from accredited business plan review and creation firms that have experience and a strong track record of SBA approvals.

Step 5: Prepare Your Financial Reports

For an SBA Loan, don’t rely on just on your business plan. If you have an existing business review your financials carefully and always include them in your submission. Tax returns and bank statements are a great way to demonstrate your cash flow and earnings. You should also be able to show and answer questions on existing or previous debts and loans. Include forecasts on how the loan will help you produce revenue and grow your business as well as how you intend to use the financing when you are approved.

Step 6: Completely Fill Your Application

Finally, you’re ready to apply, but not done yet. Be thorough, detailed, and diligent in your application. Missing information is the most common cause of returned applications. Be sure to ask questions if you don’t understand an item or are unsure of how the entries will affect the submission process. A good rule of thumb is to not leave anything blank.

Augustine Capital Solutions is usually able to close some SBA loans in as little as 30 days with our network of preferred SBA lenders and commercial finance consultants. Contact Us to get your SBA loan started and approved with the right kind of know how.

Learn more about SBA Preferred Lenders at SBA.Gov

Alternative Financing

Alternative financing is a resource for business to assume the capital they need right away. Most alternative financing sources are able to streamline their processes and make decisions in a broader scope then we often find with traditional bank lending. Alternative lenders understand that business is challenging and change is sometimes the only constant, these lenders can often provide financing even with credit worriments.

Alternative financing options and lenders are able to get capital to businesses quickly, when the business needs it. Augustine Capital is very often able to secure high-value business loans in less than two weeks and lower cost working cash in less than three days. This lending solution lets successful businesses take advantage of opportunities when and where they happen.

These time-sensitive opportunities include manufacturer purchase orders for discount material. When retailers need inventory for holiday seasons or find amazing wholesale deals they don’t want to pass up. Sometimes a commercial property hits the market and its necessary to acquire that property or lose it to the competition. In all these cases alternative financing allows for fluidity and flexibility that maximizes a business’ ability to leverage success.

It is an unfortunate truth . . .

Sometimes, especially in recent years, businesses have had to rely on alternative financing to keep the doors open and the lights on.

The latest economic recession caused the closure of many small and medium-sized businesses and created a necessity for tighter regulatory control over bank lending. Banks are not always equipped to handle special needs lending due to regulation or policy that can stop a business loan or require a time and labor intensive loan process that often results in denied applications and missed opportunities.  Sometimes banks just can’t lend because of risk, especially in (and recovering from) an economic crises.

Alternative financing helps business when the other options are too costly or restrictive. According to the Harvard Business Review, 37% of small businesses and firms use credit to operate and 20% more believe the process is too restrictive and complicated to be approved. This is where alternative lending solutions promote economic growth, innovation, and a substantial portion of the job market.

Augustine Capital Solutions has found financing for businesses that are relatively excluded from the mainstream market with creative and innovative approaches like sale and leaseback options, financing for companies that experienced bankruptcy in the recession, or unsecured credit lines to launch a new small business. There are times that banks are reticent to offer business loans, especially in cases of emergency or stress to the business.

Alternative funding and lending solutions provide business a way to launch, scale, and grow where traditional lending is unavailable. It allows a business to seize an opportunity or to weather a temporary storm. Every entrepreneur will experience a need to infuse capital into their business and often it’s alternative financing and innovative strategies that help them succeed.

Contact Us to learn more about our alternative business lending opportunities.