In this post we will discuss some trends in the commercial real estate lending process accessible to borrowers needing smaller sums of money. Many commercial lenders have a minimum loan amount of $1MM.
Small balance commercial loans have both fixed & adjustable rate commercial real-estate loans available. These loans can be acquired with up to thirty year fixed terms for both owner occupied and investment properties. These kinds of loans are more flexible & somewhat identical to residential programs and provide different benefits to the smaller investor including stated income for those that write everything off on their tax returns.
The focus for some lenders is toward loans of a million dollar and under, with a minimum loan size of one hundred thousand. Usually, they're 2 different programs accessible for small balance commercial loans. The 1st one is identical to a bank type loan which is for investors who can document earnings. If the borrower is able to offer the documentation required for the loan, terms will be competitive with a bank. The 2nd type of loan for small balance is one in which the borrower does not offer any income documentation. In this scenario there’s no real underwriting done on it. The rates prove to be a bit higher in this event by only 1 or 2%.
30 year terms & amortizations can sometimes be provided which lets the borrower have the same interest rate for the life of the loan. The majority of banks will only provide a 5-year term. This lets the borrower spread the payments out over thirty years at slightly higher interest rates than a bank but with lower monthly payments. Another great thing about having a long-term loan is that you don’t have to repeat the loan process every 5 years which is expensive with appraisals, title and other fees.
Some of these more innovating lenders are able to bring the loan to closing inside 25 days or less. That’s a lot better than the conventional commercial loan which could take many months. The only reason that it takes up to 25 days is that a commercial appraisal can take anywhere from 2-4 weeks to complete.
Another advantage of this sort of loan program is that it is not a short-term loan that is a ARM or has a balloon payment. This also has no constant annual financial reporting. As soon as the loan is established & you make your payments, you stay on without having to produce certified financial statements every quarter to keep your creditor happy.
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