COMMERCIAL LOANS

Commercial mortgages are available through banks, commercial mortgage companies and private lenders. Commercial mortgage rates vary as widely as residential mortgage rates. Traditional banks offer some of the lowest rates available. However, they have restrictive lending criteria, which constrains them from making commercial mortgages for many kinds of commercial properties. Gas stations with or without convenience stores, for example, can be difficult to obtain commercial mortgages for. Commercial mortgages can also be difficult to obtain from traditional banks if you don’t have excellent personal and business credit scores.

Hard money commercial mortgages are also available through private lenders who have more flexible lending criteria. Also known as hard money lenders, private commercial mortgage companies focus more the current value (today’s selling price) of commercial property than on your personal financial package.

“If the deal makes sense,” says Jerry Zevenbergen, CEO of Avatar Financial Group, “we are able to fund commercial mortgage. What makes sense to us is a commercial mortgage loan for a project in which we can see a clear picture of how the loan will be paid back.”

TR Hazelrigg, president of Avatar Financial Group expounds, “When determining whether to fund a commercial mortgage, we aren’t so concerned with whether the borrower has perfect personal credit, although we will askance if the borrower has repeated defaults or bankruptcies. We are more concerned with the ratio of income to operating expenses. As a rule of thumb, commercial mortgages do well if the ratio of income to expenses is 2/1 or better.”

When applying for a commercial mortgage, be prepared to provide your commercial mortgage company, be it a bank or a hard money private commercial mortgage lender, with the following:

• 2-3 years’ taxes for you and/or your business
• 2-3 years’ financial statements
• A completed standard commercial mortgage loan application, which includes a personal and business balance sheet
• A description of the use of proceeds of the commercial mortgage you are seeking
• A description of the property
• The current selling price of the property
• The cost of improvements you will make to the property
• An estimate of the property’s value when with improvements
• A repayment plan for the commercial mortgage – how you will pay this commercial back
• For a hard money bridge loan, provide an exit strategy for the commercial mortgage – will you refinance this commercial mortgage with a traditional bank after making improvements or alterations to the existing property or some other scenario?

If you are working with a private commercial mortgage company (hard money lender) be prepared to show a proof of funds with your initial application. Providing reasonable proof that you are prepared to cover the closing costs and fund the difference between the commercial mortgage and the total cost of the property will make your commercial mortgage loan application move through the steps to funding much faster.