Small Commercial Loans
A small commercial loan is used to purchase or refinance commercial property or multi-unit apartment complexes with 5 or more units. Financing small commercial property is typically more complex than a residential loan often requiring more time to close. When shopping for a commercial or small commercial loan finding a mortgage broker/banker that you are comfortable with is much more important than finding the lowest rate.
Small Commercial Loan Highlights:
- Purchase, Rate/Term Refi, Cash-Out Refi
- Loan amounts up to 10 million
- Up to 90% CLTV
- Fixed Rates - 15-30 year terms
- Adjustables - 6month LIBOR, 3yr, 5yr, 10y Hybrids
- Stated Income/Stated Asset Program
- Interest Only Options
- FICOs down to 620
Small commercial loans can be used on a variety of property types including:
- Office buildings
- Retail space/ strip malls
- 5+ unit multi-family
- Apartments
- Mixed Use
- Wharehouse
- Industrial
- Light Industrial
- Hotel
- Self Storage
- Senior housing/Residential care facilities
- Student Housing
- Mobile Home Parks
- Automotive
- gas stations
- Special Use
When do I need a small commercial Loan?
Small commercial loans are used to finance typical commercial properties such as office buildings, retail stores, gas stations, hotels, wharehouses etc. In addition, commercial loans are used to finance large residential properties such as condos, apartment buildings or other multi-family properties with more than 4 units.
How long does it take to close a small commercial loan?
Most commercial loans will take longer to close than a residential loan. While some small commercial loans can be closed in 30-45 days, some commercial loans can take 60-120 days or longer. Much of this time is needed to appraised and analyze the property and additional documentation.
What costs are involved with a small commercial loan?
Commercial Loans have many of the same fees and costs of typical residential loans such as credit report fees, mortgage broker fees, lender fees, title and escrow fees, and appraisal fees. These fees are typically higher on a small commercial loan than a typical residential loan. Commercial appraisals can be more than 50 pages long and take weeks to complete. Commercial appraisal fees are paid by the borrower and can range from $2,000 to $4,000. In addition to these fees, some lenders also charge a commitment fee which can vary.
What is involved in qualifying for a small commercial loan?
Debt to Income (DTI) ratios and Loan to Value (LTV) ratios often determine the eligibility of residential borrower, limiting the amount the borrower will qualify for. While DTI and LTV are used to qualify a small commercial borrower, however, another ratio often plays a bigger part. The Debt Coverage Ratio (DCR) or Debt Servicing Coverage Ratio (DSCR) is calculated by dividing the property's Net Operating Income by the qualifying payment. The qualifying payment is typially the principal and interest payment (P&I) or possibly an interest only payment on an interest only loan. The DCR is typically 1.15 to 1.25. This means that small commercial loans will require that the property generate possitive cash flow. The net operating income will determine the maximum payment that the property can support to meet the DCR. That payment, can be used to determine the loan programs and size of the down payment that will be required to meet the DCR.
