Due to the huge losses suffered by commercial lenders during the Great Recession, banks are much tougher when they underwrite commercial loans these days. Will you qualify? It all depends on the three C's of underwriting - credit, capacity to repay, and collateral. Let's look at credit first.
Commercial banks are the lenders who are making most of the commercial loans today, and banks require good credit. You will usually need a credit score of at least 680, and a credit score of over 700 is greatly preferred. Now if your credit score is lower than 680, please don't panic. We recently convinced a bank to approve a commercial loan for a veterinarian with a foreclosure on his record (due to a divorce) and a credit score of just 630. And even if a bank won't do your particular deal, there are still scores of Wall Street non-prime lenders and hard money commercial mortgage companies willing to make subprime commercial loans.
When a bank underwrites a commercial borrower's capacity to repay, the bank looks primarily to the cash flow of the property. The commercial property's net operating income (NOI) must exceed the proposed commercial mortgage payment by at least 25% to 45%. In the parlance of the commercial financing industry, the debt service coverage ratio must exceed 1.25 to 1.45. Conduit lenders also require that the debt yield ratio (a brand new underwriting ratio) exceed 9.0% to 10.0%.
Commercial lenders are also demanding more collateral today. In 2006 and early 2007, commercial lenders would regularly approve commercial loans of 75% loan-to-value. Many commercial lenders even made commercial loans up to 80% loan-to-value! Then commercial real estate plummeted by 45%, and commercial lenders got hammered. They took enormous losses. As a result, immediately after the Great Recession most commercial lenders cut their loan-to-values back from 75% all the way down to 58% to 65%.
Fortunately banks have finally started to loosen up a little again. This means that it is usually possible to get a conventional commercial loan from a bank up to 70% loan-to-value. Sometimes banks will even consider a commercial loan of up to 75% LTV again, but the deal will have to be very, very strong. You are more likely to qualify for a commercial loan at higher than 70% loan-to-value if the deal is a purchase money deal (in other words, you're buying the property). Another way to get high LTV deals approved is if the borrower has lots of liquid assets, like cash in the bank and marketable securities.
One last important point about qualifying for a commercial real estate loan from a bank. There are more than 5,000 banks in America, and all of them are extremely fickle. One day a bank will refuse to even consider a commercial loan in excess of 65% LTV, and yet a month later that same bank will close a commercial loan of 75% LTV. What happened? The bank suddenly loosened up because it had found itself too liquid, and it was feeling the pressure to put some money back out on the street. The way to handle this is to approach lots of different banks with your commercial loan request.
Mezzanine loans are similar to second mortgages, except a mezzanine loan is secured by the stock of the corporation that owns the property, as opposed to the real estate. If the lender forecloses on the stock, it owns the corporation that owns the building. Why use a mezzanine loan? Why not just use a garden-variety second mortgage? The answer is that a lender can foreclose on a mezzanine loan in just 5 weeks, as opposed to 18 months.
You will never find a mezzanine loan in a first mortgage position. Since mezzanine loans can be foreclosed in just 5 weeks, no owner of a $50 million office tower is going to put himself in a position where his building could be repossessed while he is on a three-week camping trip with his family. "Hey boss, while you were away, Linda forgot to make the mezzanine loan payment. Last Wednesday the mezzanine lender executed on the building, and you were completely wiped out." Yikes! By the way, a lender forecloses on a mortgage and executes on personal property collateral (cars, equipment, coin collections, etc.). Therefore there will always be a big first mortgage in front of a mezzanine loan. In the capital stack, the pecking order of priorities would be the first mortgage, followed by the mezzanine loan, followed by owner’s equity in the property. What type of loan do you need?
When the President signed executive order "PREVENTS," creating an inter-agency task force, leadership within VA and the White House began planning a road map to address the national tragedy of Veteran suicide.
They now ask for your help. The PREVENTS Task Force is releasing an RFI (Request for Information) to get your ideas in radically reducing suicide among Veterans.
"Veteran suicide requires an all-hands on-deck approach” said VA Secretary Robert Wilkie.
A bridge loan is defined as a short-term real estate loan that gives the property owner time to complete some task - such as improving the property, finding a new tenant and/or selling the property. The typical commercial property bridge loan has a term of one to two years, although many commercial bridge loan lenders will grant the owner the option to extend his loan for six months to one year for a fee of between a half-point point to two points.
BOSTON, July 11, 2019 /PRNewswire/ -- Alignable, the largest online network of small businesses with 3.6 million+ members, is launching a new campaign to share the most important trends emerging among SMBs each month.....
New Hires Are Required ASAP. One of Alignable's hiring surveys revealed that 33% of business owners feel more bullish about adding staff now than they felt in January. Only 6% plan to hire fewer people or downsize, while the remainder will hold steady with original hiring plans. A total of 3,456 small businesspeople were polled.
I wonder how many of these small business owners will be using WOTC to capture the federal tax credits they are entitled to for new hires, even seasonal or part-timers? The tax credits can range from $2400 - $9600 and even if a SMB hires only one person, they qualify for this unique program.
