After working with countless commercial property owners all across the US, I have concluded there are 4 very important factors which determine what loan requests get approved and which get declined.
1) The cash flow of the property, 2) The loan request to appraised value of the property, 3) the location/asset type of the property, and 4) Credit of the applicant.
The property has to cash flow, the income from the property has to cover all expenses, including the mortgage payment, property taxes, insurance, utilities and maintenance, with 15% to 20% to spare. If the income coming in does not cover the expenses, the loan does not have a good chance at approval.
The loan request should not be more than 70% to 75% of the appraised value of the property. Most lenders are more comfortable with a 70% loan to value. Certain owner occupied properties may qualify for up to 90% financing. Conversely land loan requests top out at 50% of appraisal.
Location of the property. Most lenders prefer properties in large to mid size cities. The smaller the city or town, the harder the deal may be to finance. Lenders are always concerned with moving the property in the event the borrower defaults. Therefore, loan requests from smaller markets often have to rely on USDA lenders to get their commercial real estate loan requests approved.
The credit of the applicant will have both an impact on the approval and the rate charged in the event of an approval. Typically a mid Fico score of 660 is sufficient for standard or bank loan rates. If the borrowers score is below this general number, hard money or bridge lenders may be your only option. Rates from bridge lenders range from 8%-mid teens, with 2 to 4 lender points.
To discuss your Commercial real estate financing request, please call me at 312 582 0929 or email me at email@example.com