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How To Qualify For Commercial Real Estate Loan

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Cdc/sba 504 Loan For Commercial Real Estate

Commercial Real Estate Loans | How to Qualify?

Designed specifically for the purchase of commercial real estate properties, a CDC/SBA 504 is like two loans in one: 50% of the money comes from a bank or lender, 40% from a local community development corporation , and the remaining 10% being the borrowers down payment. There is no maximum amount you can borrow on a CDC/SBA 504 loan.

The CDC/SBA 504, like all Small Business Administration loans, is backed by the government and requires a 680 or higher credit score but differs in that the borrower also must meet the local CDCs public policy and job creation goals. The SBA doesnt monitor the rates, fees, and terms of the lenders portion of the loan, but it does establish the CDCs, setting 10-year loans at 4.85% fixed interest or 20-year loans at 5.07% fixed interest.

Interest rates for CDC/SBA 504 loans fall between 3.5% and 5%, with a 1.5% CDC processing fee. Since this SBA loan was crafted to spur local community development and employment, a qualifying company is also expected to retain or create one job for every $65,000 borrowed. If your business is projected to grow quickly but you dont have much down payment cash on hand for a new real estate space, a CDC/SBA 504 loan might be a better option than a more broadly defined loan.

Grow Your Real Estate Business Today

Gokapitals mission is to facilitate access to capital for business owners and real estate investors looking for an easy funding process We offer a variety of commercial mortgages with loan amounts starting at$150,000 up to $50,000,000, fixed-interest rates starting as low as 6%*, and terms from 1 to 30 years.

With banks declining most applicants for commercial real estate mortgages, GoKapital approves quickly with a simple application process. Financing for commercial properties is available in all 50 states, with terms ranging anywhere from 1 to 30 years. Our non-bank commercial lending solutions also have higher approval rates than banks.

Speak to one of our loan advisors and we will help you find the right commercial real estate loan for you.

Small Business Administration 7 Loans

The U.S. Small Business Administration offers several loans under the 7 umbrella, each of which is designed to provide financial assistance for small businesses. Investors looking for commercial real estate loans should carefully consider which of the following 7 Loans will work best for their next project:

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Know Your Numbers For Real

Be ready with a personal financial statement. Aravind M.

Know the project inside and out. Understand the challenges, and be prepared to have an answer to it, and mitigate the risk to investors. Every project has challenges. Be realistic. Karen Margrave, Redding, CA, Realtor with 35 years of experience

Know the numbers inside and out. You should be able to speak about income, leases, and who your tenants are. You should also know every expense and who pays for them. Hopefully, your property has triple net leases. Danny Randazzo, Charleston, SC, Apartment Syndicator & Commercial Investor with 6 years of experience

The current lease terms and length, any existing tax debt or other debts, actual income generated by the property. Efrain Hernandez, Queens, NY, Rental Property Investor with 2 years of experience

The lender wants to know the income and expenses for the building The lender will then calculate the debt service coverage ratio and will want to see at least 1.25. Loan terms are typically no longer than 20 years and there is often a balloon well before that. Bob Langworthy, Brunswick, ME, Accountant & Real Estate Investor with 10 years of experience

How Long Do Commercial Real Estate Loans Last

How to Qualify for a Commercial Real Estate Loan in St. Petersburg

Commercial real estate loans typically do not last longer than five or 10 years. However, loan amortizations can often be much longer up to 25 years. While this means that loan payments are much lower than if they had to be fully paid off in five or 10 years, it also means the borrowers will be left with a balance that’s due at the end of their loan term, at which time borrowers will have to refinance that balance or pay it off in a lump sum.

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Commercial Hard Money Loans

Hard money business loans operate in largely the same way as bridge loans you get access to cash quickly, but youd have to pay it back it quickly, too. The key difference between hard money loans and bridge loans is in who you borrow from and the qualification criteria.

Generally, bridge loans come from banks and credit unions, while hard money loans are offered by private lenders or investors. While good credit is preferred to qualify for any loan, hard money lenders may allow those with less-than-perfect credit to qualify, since they may be able to use their equity in the business as additional collateral. However, that leniency may come with higher interest rates, so you should look into bridge loans from major banks before settling for this form of financing.

Heres a closer look at typical rates and terms:

  • Average rates: 10%-18%
  • Average loan-to-value ratio: 60%-80%
  • Typical loan size: $150,000
  • Typical maximum term: 12 months

I would look for hidden fees and ask for the annual percentage rate, McElfresh said. The rate may sound decent at 6%, but 6% per month would be 72% annually.

Where To Find Commercial Real Estate Loans

You can find commercial real estate loans at a variety of financial institutions. Look for one with a business lending team that has experience financing commercial real estate. Their knowledge can help you navigate the process and capitalize on any available opportunities.

At FirstCapital Bank of Texas, our dedicated commercial real estate lenders bring extensive firsthand experience to offer intelligent solutions that can help your business grow. We offer a complete portfolio of CRE Loans, including commercial mortgages, owner-occupied commercial real estate, land development loans and construction financingso we can finance your business’ real estate needs from the ground up.

Want to invest in commercial property with a loan from a financial partner invested in your success? Contact us or learn more.

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A Guide To Commercial Real Estate Loans

We are committed to sharing unbiased reviews. Some of the links on our site are from our partners who compensate us. Read our editorial guidelines and advertising disclosure.

Commercial real estate loans are for the purchase, or renovation, of commercial properties recognized as owner-occupied real estatemeaning that at least 51% of the property must be inhabited by the business. Office buildings, retail centers, mixed-use buildings, industrial warehouses, apartment complexes, the car wash that Walt and Skyler bought in Breaking Badall commercial properties .

Any property thats designated to make money is commercial real estate. Its not the same as a residence, and commercial real estate loans are different from residential mortgages. Commercial business loans, because of the higher risk factor of small businesses, come under more scrutiny and require detailed business plans. In contrast, for a residential mortgage, a bank probably isnt going to ask you what you have in mind for the living rooms feng shui.

Commercial Real Estate Loan Payment

How to Quickly Prequalify for a Commercial Mortgage – Updated for 2022

If it sounds like lenders for commercial loans are taking on a decent amount of risk its because they are. What if you cant find a tenant for your commercial real estate space? What if you have to lower rents? Or what if your maintenance expenses are higher than you predicted? There are several factors that can lead a business to default on a commercial mortgage.

This risk factor, along with the sums of money being so large in commercial real estate, lenders generally charge higher interest rates for commercial real estate loans than they charge for residential mortgages.

Moreover, lenders might not be willing to wait the 30-year standard that residential mortgages adhere to. Its common for commercial real estate loans to be balloon mortgages, which start with a period of regular interest payments and end with a lump-sum payoff.

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Pros Of Commercial Real Estate Loans


  • Tax breaks
  • Equity

Commercial real estate loans offer more diversity and more options than a personal real estate loan or mortgage may afford. This includes repayment terms, interest rates, and payment schedules that can work with your business schedule and budget. Youll also enjoy the tax breaks that come with property ownership, and building equity can add value to your business as you continue making on-time payments.

There are also many property types you can purchase with a commercial real estate loan, including multi-family apartments, retail space, office space, and single-family homes.

How To Get Commercial Investment Property Loans

The idea of obtaining commercial real estate financing may seem intimidating at first. Still, investors who learn about the process and the different types of commercial real estate loans will find that they are completely attainable. Below are the main steps involved in obtaining a commercial investment property loan:

  • Determine whether you will file as an individual or an entity.

  • Evaluate mortgage options and determine which commercial real estate loans will work best for the subject property and exit strategy.

  • Calculate LTV to measure the value of the loan to the value of the property.

  • Measure the ability to service the debt using the debt service coverage ratio.

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    Income And Assets Of The Guarantor

    The income, credit and assets of the guarantor of the commercial loan are sometimes used in the mortgage process. The guarantor is the person, usually the owner of the business, who guarantees the loan will be paid should the business default. A lender may require that a guarantor be used for a business to receive the mortgage. The guarantor’s income and assets must be documented, and his credit history and score have to meet the requirements set by the lender.


    How To Prepare For A Commercial Real Estate Loan

    Commercial Real Estate Mortgage Loans Phoenix AZ

    Once youve reviewed the requirements for the loan youre planning to apply for, spend some time gathering everything youll need in advance of applying. The more prepared you are, the easier the application process will go.

    If you know your credit scores wont qualify you for the best rates, you might consider building your credit before applying. You can do this by paying down other debt, making your loan payments on time, and monitoring your credit report regularly.

    Also, before applying, get a plan for how you will be able to pay the loan back. If you take on too much debt and arent able to make your monthly payments, the real estate youre buying could be seized by the bank or lender.

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    Learning More About Mortgages

    • It can be difficult to understand commercial real estate loans. If you want some help, perhaps speaking with a financial advisor could be beneficial. Finding a qualified financial advisor doesnt have to be hard. SmartAssets free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If youre ready to find an advisor who can help you achieve your financial goals, get started now.
    • Do you have a rough estimate as to how much the property youre looking to buy will cost? If so, the mortgage calculator from SmartAsset can help you decipher about how much your loan will cost on a monthly basis. Through this tool, you can integrate a bunch of other factors, such as an interest rate, down payment, loan type, taxes and more.

    Understand About Your Lending Limits

    Different lending institutions have defined different norms on the maximum number of loans one can carry. For example, Fannie Mae allows an investor to take a maximum of 10 credits at a time. Fannie Mae is on the higher extreme of the loan limit, and most lending institutions curb their lending limits to a maximum of 6 to 8 loans.

    The interesting point about this option is that if youre working the right lender, they can help you choose an optimal portfolio of investments that will let you leverage the best by the maximum loan amount limit.

    A right mix of both short-term and long-term loans can be worked out to ensure your out-of-pocket expenses are at a minimal, at least during the initial stages of your loan repayment. Further on, it is worth noting that bigger banks and other traditional lending institutions have lending limits to as less as four loans. Thus, finding out what lending institutions are willing to go up to the level of 6 or more credits is important and might need some leg work.

    Before you do that, consult a real estate advisor to work out if youll need more than 3 or 4 loans in the first place. How many loans youd require, and what kind of loans is a question you need to answer by keeping your specific needs and requirements in mind? Thus, working with an expert commercial real estate advisor is highly recommended.

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    Commercial Real Estate Loans : The Basics

    Because the value of a commercial real estate loan is usually so much higher than the value of a residential mortgage loan, there are a number of qualifications a business must satisfy for banks and lenders. The bar can be set quite high.

    For example, a lender is going to want to know about the type of business you run. Very often, the terms of a commercial real estate loan will depend closely on the nature of your company and the type of property required.

    A bank or other lender will also want more information on your current business situation. Even those with existing, profitable businesses will need to provide historical financial statements, a business plan and detailed financial projections so the bank or lender can feel confident you can make your payments.

    Your business situation will help define your risk profile, which is a major factor in determining not just the size of the down payment, but the overall terms of the commercial real estate loan.

    What Does It Take To Qualify For A Commercial Real Estate Loan

    How To Get Loan Approval On Commercial Real Estate

    Every lender has its own criteria for commercial real estate loans, but there are some important questions to consider before you apply. For example, how much is a down payment on commercial property? And what are the business financial requirements? Do you have the credit scores to support a low interest rate?

    As for business financials, what youll need depends on the lender. For example, SBA 504 loans actually have a cap: your business tangible net worth cannot exceed $15 million, and average net income cannot exceed $5 million after taxes for the prior two years.

    With commercial lenders, you may be required to meet certain minimums, such as having at least two years in business under the current ownership and $250,000 in annual revenue.

    As you shop around and compare lenders, take note of their requirements to determine whether you qualify. Also, consider both traditional commercial lenders like banks and online lenders in your search. While online lenders may charge higher interest rates, they can also have less stringent requirements for credit approval.

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    The Application Process And Requirements

    The exact application process for a commercial loan will differ depending on the type of loan. In general, commercial loans are harder to qualify for and have a longer approval period.

    Requirements are more stringent. After all, lenders have more money on the line, and itâs riskier. If your business or investment strategy fails to generate the income you expect, how will you make your payments?

    Lenders will use a lower loan-to-value ratio to determine how much money they can extend to you. With consumer mortgages, some borrowers can qualify for nearly 100% financing. However, with a commercial loan, that number will be around 75% to 80%. They will also consider your DSCR, or debt service coverage ratio, which measures your ability to repay the loan with your existing cash flow.

    Debt To Service Coverage Ratio

    This is one of the most important criteria that lenders look at, and is essentially a calculation of your net operating income divided by your annual debt servicing costs.


    For example, if your business makes a net operating income of $100,000 per year, and your annual debt service cost is lower than that number, your debt service coverage ratio will be higher than 1. A ratio of 1 or higher is a strong indicator that a business is making enough operating income to cover its annual payments. A bank or lender will often consider businesses with a debt service coverage ratio of 2 to be an ideal borrower.

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    Your Experience In Ownership Or Management

    If you have never had experience owning or managing commercial real estate, it may be harder for you to qualify for a loan. Lenders tend to look at the experience you have had to ensure you can properly manage the investment. Owning a few duplexes is a great start, but it is nothing compared to having ownership or management experience with large multifamily units. Many third-party management companies do not find it worth their time to manage a small number of units for an owner. Since finding a third-party manager is difficult, the lender wants to know you feel comfortable with leasing requirements, employment verification and background checks in order to be successful in commercial property management.

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