Commercial real estate loans are used by business entities (corporations, partnerships, funds or REITs) to purchase and operate property. They can be secured by leveraging the property itself or by personal guarantees.
Lenders will typically require extensive documentation and a solid 신용카드한도대출 business credit score when evaluating a CRE loan application.
Term Loans
Commercial real estate investment properties are purchased with the intention of earning a return through either increased property value or cash flow. Commercial real estate lenders offer a variety of loan products to meet the needs of commercial investors. Term loans are the most traditional type of commercial real estate lending product. With these loans, funds are advanced at the time of loan closing and repaid in installments consisting of both principal and interest. Lenders evaluate the creditworthiness of borrowers by considering their personal and business credit histories, as well as financial ratios such as the debt service coverage (DSCR) which is calculated by dividing annual net operating income by annual debt payments.
Unlike residential mortgages which are commonly issued for terms of up to 30 years, commercial real estate loans are typically shorter in duration and may feature an amortization period of only 10 or 25 years. This can leave borrowers with a balloon payment at the end of their loan term which they will need to pay off or refinance.
As a result, qualifying for a commercial real estate loan can be more complicated than securing a mortgage for a personal home. In addition to credit score and DSCR, lenders also assess the time factor in which a borrower has been in business. In general, the longer a company has been in business, the more likely they will be to qualify for a commercial real estate loan.
While many people think of a commercial real estate loan as being used to invest in properties for profit, these loans are also commonly utilized by businesses that use the property securing the loan for their own business purposes. In order to secure a commercial owner-occupied loan, businesses will need to have good credit, make a down payment of at least 25% and plan to utilize a majority of the property being financed for their own business purposes.
Bridge Loans
Commercial real estate investors often use bridge loans to win a deal in a quick close situation or to add value to an existing property. They also take advantage of bridge loans when they are unable to secure permanent financing in the timeframe required for a 1031 exchange. Bridge lending companies like Jafri Capital offer short term financing solutions to provide peace of mind for CRE property investors.
The closing dates for selling a property and purchasing a new one rarely align, and buyers can find themselves stuck in an uncomfortable balancing act. Bridge loans can help borrowers buy a new property before the sale of their existing one completes and avoid paying rent until they do.
If you’re looking for a bridge loan, it’s important to consider the terms and conditions carefully. Some lenders require strict eligibility criteria that exclude borrowers with credit issues or those who can’t meet conventional mortgage requirements. Bridge loans are also usually pricier than traditional commercial real estate mortgages.
It’s worth noting that a bridge loan will leave you with two mortgages to pay for the period between your property’s purchase and sale. This can be a serious financial burden, especially in a competitive market like NYC.
However, a well-researched calculation of the total cost can make this type of borrowing more attractive. It’s also a great option for investors who don’t want to sell their current property or can’t wait to get into the market for a new investment. It’s important to remember, however, that bridge loans aren’t a long-term solution. Once your property is sold, you’ll need to find a permanent financing solution. For this reason, it’s a good idea to talk to your home lending advisor about your options before you decide to apply for a bridge loan.
Recourse Loans
When it comes to commercial real estate loans, lenders typically have recourse and non-recourse loan options. A recourse loan allows the lender to go after other assets in addition to the mortgaged property if the liquidation value of the collateral isn’t enough to cover the debt. Non-recourse loans only allow the lender to seize the property.
Generally speaking, the non-recourse loan type is more popular because it doesn’t expose the borrower to as much risk should something bad happen. This doesn’t mean the borrower is completely safe, however. Even with a non-recourse loan, if a sustained economic downturn occurs and vacancy rates rise or rents must be lowered, the borrower may not be able to keep up with their mortgage payments, ultimately defaulting on their loan. In this case, the lender will still have access to the borrower’s personal assets through what is called a bad boy guaranty.
Recourse and non-recourse financing are common among both short-term construction and longer term permanent commercial real estate investments, including mini-perm financing that helps developers pay off construction projects before their properties become profitable. In some cases, a recourse loan will convert to non-recourse financing if the project meets specific stipulations like reaching 90% occupancy within a given period of time or hitting a certain debt service coverage ratio (DSCR) for a set amount of time.
Bank loans, CMBS loans, Fannie Mae and Freddie Mac multifamily loans, mezzanine financing, life company loans and HUD multifamily loans are all typically non-recourse financial instruments. That said, most lenders have to abide by state laws concerning foreclosure proceedings and other items pertaining to recourse and non-recourse loans. These include statutes addressing deficiency judgments, which occur when you owe more than your property sells for in a foreclosure sale.