Category Archives for Commercial Mortgage
Considering American Commercial Mortgage Options
“Does It Make Sense To Look South Of The Border For Commercial Mortgage Options?”
With the dollar staying close to par, does it make sense to consider a U.S. dollar currency funded commercial mortgage?
Why is this relevant?
Well, with all the carnage that is going on in the states, the Canadian economy is looking like a better bet for investing in commercial mortgages, at least in certain areas of the country.
So there are commercial property funding sources that are spending more time trying to get into the Canadian market.
In the past, even though Canadian business owners would consider U.S. based funded mortgages on commercial property, the close rate tended to be rather low as in the end, if they could receive a competitive offer that was close to a U.S. offering, in Canadian dollars, then the Canadian deal would be taken for fear of the currency risk driving up the cost of financing over time.
But is that as much of an issue anymore?
Sure, the dollar will continue to go up and down, but when you’re talking about a mortgage term, its usually for a three to five year period of time. With all the trauma going on in the global financial markets, its hard to forsee a significantly lower Canadian dollar any time soon.
Outside of currency, there is also the issue of availability.
There are certain segments of the commercial property market that Canadian lenders don’t have much interest in from time to time, mostly driven my the economic conditions of a sector, and partly driven by the balance of any given lender’s mortgage portfolio.
These days, a commercial deal that is just below the approval line of a Canadian lender, can be very attractive to a U.S. currency funded lender that is looking to upgrade its deal flow and diversify into the Canadian economy.
If a U.S. dollar backed commercial mortgage at a decent rate is the best option, or maybe the only option available, then its going to be given some serious considerations, despite the currency risk.
There is certainly a lot of U.S. dollar funds that would like to invest in Canada these days and that’s also not likely to change in the near term as economic reports from down south continue to worsen.
So if you’re in the market for a commercial mortgage in Canada, you may want to consider American commercial mortgage options for the reasons provided above.
Short Term Commercial Property Financing Considerations
“Here Are Some Commercial Property Financing Considerations For
Short Term Lending”
As we continue to work through the post recessionary financial melt down of 2008 through 2009, there are still a large number of commercial business operations struggling to get back on their feet.
In order to continue to survive the down turn, asset rich companies end up turning to asset based lenders, many times at higher costs, to inject capital into the business through debt financing facilities that these types of lenders provide.
And when a business is in some form of financial distress, the cheapest form of asset based lending is going to come from commercial property financing, assuming the business has real estate assets that it can offer as security.
If you have a business that is looking to leverage commercial property to inject capital into the business, then here are a few things to consider.
First, time is typically your enemy when it comes to commercial mortgage financing. The process can take longer than you think, especially if you are trying to get funding through a bank or institutional lender when you’re financials are not that strong.
Second, the cost of a commercial property loan may be higher than what you have been used to pay over the years, especially if the most likely source of financing is likely going to be coming from a private mortgage lender.
Third, for any type of financing facility or loan you may consider accepting, make sure you allow enough time for the business to get back on its feet before the commercial loan needs to get repaid.
For instance, in the case of a private mortgage, most lending terms are for one year.
If you’re highly confident that your cash flow will get back on track in the coming months and have strong enough financials to go back to a bank or institutional lender to refinance, then you should be considering a two or three year commercial mortgage term if they are available, even at slightly higher rates as the cost of having to refinance a private mortgage with another private mortgage a year from now will be significant.
Also, there is no guarantee that in a year’s time that private money will even be available for your particular requirements, at the time the old mortgage needs to be paid out.
A private mortgage is going to have some placement costs you are going to have to absorb, so better to only have to incur them once and make sure that any short term commercial mortgage your take on will bridge you to a period when you can return to low cost forms of money.
Finally, if you do end up generating additional capital through a private commercial mortgage, make sure that you allow yourself plenty of time to arrange the payout of this mortgage in the future. As I mentioned earlier, commercial mortgages can be slow to arrange and the last thing you want is to get to the end of your private mortgage term and be in a funding delay with a bank or institutional mortgage application, potentially generating more penalties and/or fees in the process.
Short term commercial property financing in many ways is about biting the bullet and paying what you need to get financing in place, but to also minimize the cost as much as possible and being realistic about how much time you are really going to need the money and how much time its going to take to pay it back.
Click Here To Speak Directly To Toronto Mortgage Broker Joe Walsh
Commercial Mortgage Timing
“Getting The Right Commercial Mortgage Deal Can Be All About Timing”
Commercial mortgage financing, unlike residential mortgage financing, can be all about timing.
What I’m referring to is how the supply side of the commercial property financing market is constantly changing as lenders work to maintaining a balanced portfolio of commercial mortgage investments.
At certain times, there can be considerable supply and competition for a particular deal, while at other times it can be hard to find any lenders that are going to be interested in providing funding.
This relates primarily to the geography where the commercial real estate is located, the industry that generates the revenues to service debt as well as provide a resale market for the asset, and the lending and funding criteria of any specific commercial mortgage lender.
And because most commercial lenders will consider a wide spectrum of properties, there can be constant adjustments as to what can be funded, how it will be assessed, and the amount of financing a commercial mortgage lender will extend.
Let’s take the example of a hotel.
For any commercial property lender that will finance a going concern hotel, they will have predefined rules as to how much of their portfolio they are prepared to place into this sector.
If last month they place a business mortgage that filled up their available lending allocation for this property type, then next month a similar looking deal could come through the same lender’s door and not get funded.
Taking it one step further, a commercial lender may have quite a bit of hotel commercial mortgages in their portfolio and are willing to consider additional investments, provided that they are of a lower risk value to the lender than what they already have in place. To accomplish this, the lender may have more stringent requirements for future deals such as major flags only, national reservation systems, and so on.
For the business owner or property owner, there is no way to really know when the lending sign is out and when its not when it comes to commercial property financing.
Potential borrowers have a certain capital need at a certain time.
So when commercial property financing is required, the exercise is to quickly locate those lenders, at that particular time, that are going to be seriously interested in funding your requirements.
In many cases, this cannot be a popularity contest, loyalty exercise, or response to branding. Its about knocking on the doors of those lenders that are currently in a position to service your needs.
As a result of this ebb and flow of market supply from a funding point of view, this also means that there are better deals available at different points in time.
The more in tuned you are with the market, the easier it will be to align yourself with a lender that can meet your requirements.
This can also mean delaying a project until there is a positive adjustment in the supply side.
The good news is that the commercial mortgage market is vast in terms of lenders.
The challenge is to efficiently navigate the landscape to develop commercial mortgage options that are going to be acceptable to you.
Commercial Mortgage Broker Advantage
“Working With An Experienced Commercial Mortgage Broker Can Be Advantageous In A Number Of Ways”
There is a considerable difference between working with a commercial mortgage broker compared to a broker that is focused more on residential properties both in terms of value and approach.
With a residential mortgage broker, the focus in most cases is on speed and interest rates as the market is very aggressive with not much of a difference between the best and worst offers in the upper end of the home mortgage market.
With a commercial mortgage broker, the focus is more on the total financing process and how to make it as efficient possible so that time doesn’t work against you.
The business financing market can be very difficult to figure out at times in terms of who is prepared to finance any particular borrowing request. Because of the portfolio constraints attached to larger scale mortgage lending, the landscape of the market can change on a regular basis, making it hard for any business or property owner to effectively figure out how to locate and secure the funding they are in search of.
Even with very straight forward deals, it can be difficult to get the commercial mortgage financing deal you’re looking for, even when every lender you talk to initially claims they can provide the funding required.
The real value of a commercial mortgage broker is the ability to clearly understand your requirements, and then get your commercial property financing request in front of the most relevant lenders at a given point in time.
From there, its all about managing the application process by proactively helping you assemble all the pertinent information the lender is going to be asking for, as well as supporting information that will strengthen the application.
Experienced commercial mortgage brokers have learned over time that its essential to follow a clear process for qualifying each and every deal and for putting together an application package that is less about hype and more about anticipating and then proactively answering the questions that a particular lender is going to ask.
Seasoned commercial mortgage brokers keep tabs on the market in terms of who is lending on what and if they’re requirements and lending criteria have changed.
This can mean the difference between shooting in the dark and drawing a straight line to someone who can actually help you.
Because a commercial mortgage broker is not the actual lender, there is always risk of getting an approval from any one particular lender in the time you have targeted to complete the funding process.
But if you commit to the process, the probability of success goes up dramatically which is the biggest single advantage of working with an experienced commercial mortgage broker.
Ontario Commercial Mortgage Broker
“We Are Ontario Commercial Mortgage Brokers Providing Commercial Property Financing Solutions To Our Clients”
As an Ontario Commercial Mortgage broker, my goal is to deliver the best commercial property financing solution that can be put into place with the time you have to work with.
Taking into account your requirements and time lines is a very important aspect of commercial property financing due to the amount of time the process can take with any given lender, and the portfolio constraints that can be in place that can limit a commercial lenders ability to place incremental funds into the market.
So the key first step with with any commercial mortgage financing request is to accurately assess the needs of the borrower or property owner, and then identify relevant financing options that are available at time the funds will be required.
As an Ontario Commercial Mortgage Broker, the initial assessment step of the borrower’s needs is critical to set the process going in the right direct where the expectations of borrower, lender, and broker can all be aligned towards success.
And after performing an initial assessment of the financing request, there are times when I don’t have a lending solution that meets the requirements of the lender, and if that’s the case its better to determine that quickly so that neither borrower, broker, or lender are wasting any time on a financing request that cannot be completed.
This is arguably the biggest signal challenge with business mortgage financing … matching up commercial property financing requests with relevant lenders.
Unfortunately, large amounts of time can be wasted applying to lenders that have a low probability or even no probability of providing funding.
This can lead to missed funding timelines and deal collapse, which can be very costly to the potential borrower both in the short and long term.
As a Ontario commercial mortgage broker, my focus is on providing a proven process for locating and securing commercial mortgages that doesn’t guarantee success, but increases the probability of getting the financing you’re looking for in the time you have to work with.
By committing to the process, odds of not only getting funding, but funding that fits your requirements and needs will increase considerably.
There is always risk in the process as well as each commercial mortgage is really a customized lending solution as rarely are two scenarios ever exactly alike. Combine that with the number of people that are going to potentially be involved in providing input into the deal, including third party service providers such as lawyers, accountants, appraisers, environmental consultants, and so on, and potential complexity that you may have to manage through can be considerable.
But with the help of an experienced Ontario commercial mortgage broker, you will be able to navigate the market place and individual lender application processes more smoothly and efficiently.
If you have a commercial mortgage financing requirement in Ontario, I suggest that you give me a call so I can go through the initial assessment process with you and discuss different commercial property financing strategies that may be available to you.
Click Here To Speak With Ontario Commercial Mortgage Broker Joe Walsh
Alternative Commercial Mortgage Options
“What Types Of Alternative Commercial Mortgage Options Exist In The Market?”
Alternative commercial mortgage options are going to vary considerably by region and point in time, as commercial lenders continually enter and exit the market.
And when we speak of alternative commercial mortgage options, we’re talking about pension funds, life insurance companies, hedge funds, U.S. banks, Foreign Banks, and so on.
These are alternative sources so to speak because they are out of the main stream retail marketing eye site of most people.
And while you may think that most of the business property lending in Canada is provided by the major banks and other name brand institutional lender, the alternative lending space can get close to half the market in some years.
And right now, the move is more on the rise for alternative commercial mortgage options due to the strength of the Canadian economy and for investors all over the world looking for some place to put their money where the risk of loss is more reasonable and predictable.
Commercial property financing always attracts a lot of attention, especially in the major centers due to the fact that most investors and financial institutions like land and want to hold a significant portion of their portfolio in land assets or commercial mortgage securities that are backed by land.
Compared to the residential mortgage market, there is also a greater opportunity to make money in some respects. With residential mortgages, the major banks can use home mortgages as more or less a lost leader to get greater control of the customer’s pocket book and allow them the opportunity to sell higher return items like investment securities, insurance, and so on.
Alternative commercial mortgage lenders can also have slightly different underwriting and lending criteria to what the usual suspects may offer, providing sources of funds that in some cases are easier to access and secure.
The challenge with commercial mortgage financing, as we have discussed before, is due to the large transaction size, its always going to be challenging to know who all the relevant commercial property lenders are at any give point in time. Commercial mortgage lenders must watch their portfolio’s very closely to keep them in balance, working to make sure there is never too much concentration in any one area of the market.
And because no commercial lender will ever outwardly advertise what they are currently interested, the process for finding the right lender fit can be a very hit and miss approach to say the least.
The best approach to finding alternative commercial mortgage options for a commercial property financing need you may have is to work with an experienced commercial mortgage broker who stays on top of different forms of both main stream and alternative commercial mortgage sources that are active in the market for different market segments.
Getting the assistance of a commercial mortgage professional can potentially save you considerable time and money compared with trying to figure the market out by yourself.
The good news is that at any given time, there can be several alternative commercial mortgage options for you to consider. The hard part is finding them and that’s where we come in.
Commercial Mortgage Complexities
“Getting The Right Commercial Mortgage In Place Can Take More Time And Money
That You May Expect”
A commercial mortgage is essentially a customized lending solution as no two lending requests are going to be exactly the same.
As a result, there can be a considerable amount of analysis and information verification on the part of the lender before any type of commercial mortgage commitment is extended and money advanced, and the larger the deal, the more review and verification required.
One of the keys for dealing with this potentially complex and time consuming process is to provide the borrower with the key information they are going to require from the outset and have the main third party verifications in place.
This can cost you some money up front, but can also radically increase the speed of the process with the lender.
There are pros and cons to the preparation process and we can discuss a bit further.
Many of the time consuming elements of the commercial mortgage financing process relate to the time it takes to get what I call third party verifications in place. Items like accountant prepared financial statements, appraisals, and environmental assessments are going to be required on each and every deal. If you don’t commission these items until after the commercial mortgage application has been made, the time required to complete each can add months to the process.
So on the pro side of the equation, getting the core information pieces assembled ahead of time will make the process go faster and will attract greater lender interest from the outset.
From the con side, while getting documents completed before hand will always have a value, certain things may still not be to the lenders requirements and have to be updated or re-completed by another party.
For instance, most lenders will only use AACI appraisers that are on their pre approved list, and that will provide them with an appraisal for the purposes of mortgage financing strictly for the lender’s own use for a defined period of time which typically is 60 days.
If you have gone out and gotten a commercial appraisal on the property completed ahead of time, this once again can help accelerate the process, but it may not eliminate the need to have a second appraisal completed by a pre-approved appraiser (with the same credentials) which is going to cost more money and take more time.
With respect to financial statements, any accountant prepared financial statements over 6 months old will likely need to be further supported by interim financial statements for the period of time since the last year end of the business when financial statements were prepared by the third party accountant. Sometimes a lender will accept the interim statements from the applicant’s own accounting system, but may times they will not. Further, depending on the amount of the funding request, the level of accountant review will also come into play which again can take more time to complete and cost more money.
These are only some of the things to consider before applying for a commercial mortgage.
The best approach to getting the right commercial mortgage in place in the time you have to work with is to utilize the services of an experienced commercial mortgage broker who can help you more effectively manage the complexities around your application.
Click Here To Speak With Commercial Mortgage Broker Joe Walsh
Commercial Mortgage Refinance
“Toronto Commercial Mortgage Refinance Considerations”
For Toronto commercial mortgage refinance situations, there are a number of things you need to consider, depending on the specifics of your mortgage refinancing requirements.
First of all, are you able to renew your mortgage with your existing lender or are you forced to refinance through a different lender?
In situations where you’re are heading into a mortgage renewal period where the term of your existing commercial mortgage is coming due, the most important thing you can focus on is starting the process of renewing or seeking refinancing options as soon as possible, even 6 months or more before the current mortgage term will expire.
The mortgage process followed by bank and institutional lenders can take a considerable amount of time so the sooner you start assessing your available options and potentially applying with other lenders, the better.
Its not unusual for a commercial mortgage refinance process to take sixty days or more and if you have not allowed enough time to explore your options, you may end up being resigned with the offering of your current lender.
While there may be nothing wrong with renewing your current commercial mortgage for a longer term, there is no incentive for your existing lender to offer you premium rates if there is no real treat of you refinancing with someone else. So starting early and exploring your more viable options is going to be important to getting the best result.
If you are in a situation where you are forced into a mortgage refinance scenario, then time may not be something that’s on your side.
If this is the case, you want to make sure that you get zeroed in on the most relevant commercial mortgage lenders as quickly as possible so you’re not wasting precious time in your mortgage refinancing process.
One of the watch outs with commercial mortgage applications is casting your net too wide by working with too many lenders or mortgage brokers. Because the process takes a considerable period of time, lenders are less open to working through an application if they know that you have applied to several other commercial lenders.
Excessive shopping can kill potentially otherwise viable options if a commercial mortgage lender believes they are just one of many looking at your deal.
Another consideration when time is short is to look at private mortgage options for your commercial property.
A private commercial mortgage refinance can be accomplished in most cases much faster than through a bank or institutional lender. If you have less than thirty days to complete a commercial mortgage refinancing, a private mortgage lender may be the best short term option.
Then, once financing is secured, you can take your time and go through a more exhaustive process to locate and secure the best possible deal available to you from a bank or institutional commercial mortgage lender.
Ontario Commercial Mortgage
“Ontario Commercial Mortgage Landscape Is Very Diverse”
The Ontario commercial mortgage market has the distinction of being very diverse when it comes to commercial lenders actively providing commercial property financing in the province.
Because of the sheer size of the market, and its strength both maintaining strong property values and market activity, commercial mortgage lenders are drawn to it like flies to honey.
That being said, commercial lenders can also be coming and going from the market, depending on where their other interests lie as well.
For instance, its not unusual for U.S. based lenders to come into the Ontario commercial mortgage market to further diversity their portfolio.
And for the private mortgage lending segment, the commercial mortgage requirements under $2.0M can be very popular, especially within Toronto and the Greater Toronto Area.
With respect to regions in the province, there can be considerable disparity in terms of interested lenders at any given time and the rates and terms being offered.
There is no question that a commercial property owner within, or close to, the Greater Toronto Area, has many more potential financing options than someone more remote.
Another challenge with any commercial lender is that they are all driven by their portfolios and how in balance or out of balance they can be at any given time.
And when there is too much of a portfolio concentration in one type of commercial property and/or industry in one or more regions, you will see commercial lenders pull out of the market for a period of time, reducing the amount of capital supply available within certain slices of the market.
While for many business owners their Ontario commercial mortgage options can be considerable, it still can take a fair bit of time to get the mortgage financing you’re looking for in place.
And if you don’t focus in on the most relevant sources of commercial mortgage financing at any given point in time, its easy to waste a lot of time and money trying to get the right deal in place.
The best way to sift through all the available commercial mortgage options, and quickly zero in on the specific lenders that are going to be interested in your deal today is to work with an experienced commercial mortgage broker who can provide his or her market knowledge and expertise towards your mortgage requirements.
If you’re in need of a commercial mortgage today, or are just planning ahead for a future requirement, I recommend that you give me a call so we can go over your situation together and discuss different commercial mortgage financing strategies that can meet your needs in the time you have to work with.
Commercial Mortgages And Cash Flow
“Always Remember That Commercial Mortgage Lenders Are Cash Flow Lenders”
Almost with out exception, any bank or institutional lender will characterize themselves as a cash flow lender when it comes to real estate.
Sure, the value of the property and its condition are going to be important factors as well, but without cash flow there isn’t going to be a lot of interest from low rate providers like banks.
There are some exceptions to this when it comes to private lenders with respect to lower rates, but even lower rate private mortgage lenders are going to be interested in cash flow to a certain degree.
For a commercial property, there are basically three different cash flow generating scenarios.
The first and most common one is rental income from the tenants of a commercial building. Here a lender is going to be interested in all the specific leases or rental agreements in place, the strength of the individual tenants, and the amount of time remaining on occupancy agreements. In some geographies, its not unusual for a commercial mortgage lender to require that at least 80% of the leases or tenant agreements in place have at least as many years remaining on the agreements as the mortgage interest term that is being contemplated.
This is a good example of how you can set yourself up for better long term financing by getting tenant agreements in place for longer periods of time prior to applying for a commercial mortgage.
The second form of cash flow is the business revenues generated from a self occupied or owner occupied situation where the property owner is running a business within the building as effectively his or her own tenant.
In these cases, the financial statements of the operating company or companies occupying the commercial building are going to be scrutinized for cash flow to see if there is sufficient net cash to service the required commercial mortgage.
Sufficient cash flow will vary by lender with unique additions and subtractions to the income statement for non cash items. For the most part, the debt servicing requirement will fall in the range of 1.2 to 1.4 times the annual debt servicing. Put another way, the net adjusted business cash flow must be 1.2 to 1.4 times the annual principal and interest payments on the mortgage.
The third source of cash flow for commercial property financing is a combination of the first two whereby part of the building is rented out to unrelated third parties and part of the building is owner occupied.
In this scenario, all rent rolls and business operating company financial statements will be collectively reviewed to assess cash flow and debt servicing capacity.
If there isn’t sufficient cash flow to qualify for commercial property financing with a bank or institutional lender, then secondary lenders and private mortgage lenders can also be considered, but they will also have an interest in cash flow due to the higher loan amounts associated with commercial properties, and the need for the borrower to service debt on a monthly basis.
If you are in need of a commercial mortgage or are just planning ahead, I suggest that you give me a call so we can review your situation and discuss different commercial mortgage financing strategies that you could utilize either now or in the future.
Commercial Business Mortgage
“What Is A Commercial Business Mortgage?”
A commercial business mortgage has two different aspects that need to be defined to understand what exactly it is.
First of all, a commercial mortgage is a mortgage financing facility provided against a real estate property that is zoned for commercial use. Put another way, all properties that are not residential have some form of commercial or industrial zoning classification.
A commercial property can be owned by an individual or a company.
When the owner is a company, the mortgage effectively becomes a commercial business mortgage.
There are basically three different commercial property scenarios where lenders will be asked to provide a commercial mortgage: 1) commercial rental property; 2) owner occupied commercial property; 3) a combination of owner occupied and third party rental or lease.
Under each of these scenarios a commercial lender is going to review the financial statements of the business, the business credit, and the collateral offered as security.
There can be significant deviations in credit criteria from one type of property to another and from one region to another.
Because of the commercial use the takes place on these properties, and the larger investment dollars that can be associated with the average commercial property compared to the average residential property, a commercial mortgage lender is typically going to require considerable third party verification of key assessment items before being able to commit and fund any financing request.
The most common third party verifications include a commercial appraisal from an AACI certified appraiser, an environmental assessment from a recognized environmental consulting company, and accountant prepared financial statements with varying review levels depending on the size of the commercial business mortgage.
A commercial business mortgage can be used to acquire a property, consolidate debt, refinance and existing mortgage, fund a construction project, or provide incremental working capital to the business entity.
Because of the additional assessment work required for a business type mortgage, the lending process through a bank or institutional lender will typically take from 60 to 90 days, with private mortgage lenders falling more into the thirty day range, provided that any required information is readily available.
If you’re in need of a commercial business mortgage and would like to find out more about your options, your next step should be to work with an experienced commercial mortgage broker who can properly assess your situation and provide you with relevant commercial mortgage options for your consideration.
Commercial Mortgage Rate Variability
“Commercial Mortgage Rates Can Vary Considerably Based On Competition And Risk”
Commercial mortgage rates can be significantly influenced by competition in any given area of the country.
Even for nationally recognized lenders, they can have very different underwriting rules and rates for each of the different regions they operate in.
Most of the reasons for this relate to competition and risk which are also related to each other.
Let me explain.
The more risk any particular market is deemed to have, the less competition that will exist. For commercial property markets, the biggest risk to a commercial mortgage lender is a low volume, long sales cycle commercial resale market. In these areas, there has to be a greater lending focus on the more localized factors that are going to make or break the underlying business that’s servicing the debt as the security by itself does not provide as much comfort to lend money being that its hard to know when a lender pay be able to recoup their principal from a foreclosure action and how much they might get back when the dust finally settles.
A thinly traded market also tends to suggest lower amounts of commercial properties requiring financing, and still lower amounts of similar commercial properties being offered for mortgage security.
As a result, the harder the market is to operate in with respect to risk management, the fewer the players will be with respect to those that issue commercial mortgage financing facilities.
For the lenders that do service markets with lower levels of competition, the cost of borrowing is likely going to be higher than in a more competitive market.
Taking it one step further, regional commercial mortgage lenders can also be more stringent in terms of what they are prepared to finance and the terms they are prepared to offer because they know there isn’t going to be much alternative competition to what they are offering.
The tighter financing options available will also impact the cost of real estate as buyers will only be prepared to purchase properties where sufficient leverage can be provided.
The opposite is going to be true of larger metropolitan areas where active resale markets and higher levels of overall economic activity reduce lender risk which in turn increases competition for available commercial financing opportunities.
So unless your target property is located in or near a major economic center, there is a good chance that commercial financing will not only be harder to locate and secure, but the rates will be higher and terms more strict that what you could expect in other areas of the country, from the same or different commercial mortgage lenders.
If you’re in need of commercial mortgage financing, I suggest that you give me a call so we can go over your requirements together and discuss different commercial property financing options that may be available to your in your market area.
Click Here To Speak With Commercial Mortgage Broker Joe Walsh
Commercial Business Mortgage Application Process
“A Commercial Business Mortgage Application Process Will Vary By Lender
And Lender Type”
The commercial business mortgage application process for a bank or institutional lender can be very different from a private mortgage lender.
First of all, a bank or institutional lender, by definition, is a low risk lender, providing prime plus interest rates in most cases. In order to commitment to providing a commercial mortgage, the bank or institutional lender must determine that the risk of loss is appropriate for their lending criteria.
In order to accomplish this, they take a look, in detail, at the security being offered, cash flow repayment, business model dynamics, balance sheet leverage of the borrowing entity, personal covenants in many cases for the owners of the business, credit of the business and personal owners and so on.
Step one in an institutional commercial mortgage is completion of a complete information package that can take some time to prepare as it typically will require the last three years of historical financial statements for the borrowing entity, current year interim statements along with all supporting sub ledgers and schedules, two or three years of projected financial statements including income statement, balance sheet, and cash flow all reconciled, a rent roll if the financing is on a rental property, and a business plan/business overview that accurately describes all the working parts of the business and how each may lend to profitability and business risk.
Once a complete application is submitted, an initial review will be preformed from which follow up or clarifying questions are likely to arise. This can result in requests for additional information that will need to be compiled or prepared and submitted to support the primary application.
If at this stage of the process, the lender sees the potential for providing a commercial mortgage, then a term sheet would be issued outlining the potential terms and conditions of a commercial mortgage facility.
If the applicant signs back the term sheet, then the outlined conditions would next need to met in order to get to the stage of a formal commitment for funding.
The conditions that typically will be required to be covered off at this stage include a third party appraisal from an AACI appraiser, an environmental assessment, and potentially accountant prepared year end or interim statement to bring everything up to date.
If everything checks out, then the lender will issue a commitment which will outline any remaining conditions that will need to be met and the borrower covenants.
All in all, this process is going to take at least 60 days and in many cases the time period will be even longer depending on the amount of time it takes to complete each step and get all the information requirements covered off.
In direct comparison is the commercial mortgage application process for a private mortgage lender.
While many of the same items are going to be required, a private lender is going to be more focused on the equity in the pledged security and the marketability of the real estate now and in the near future.
Cash flow repayment is going to also be important, but not to the levels required by a bank and institutional lender.
And if things like appraisals or environmental appraisals were completed in the last couple of years and readily available, these may suffice for the private lender’s purposes.
Because of the more streamlined process, a private lender commercial business mortgage application process is going to be at least 30 days from application to disbursement with some deals taking longer once again to the time required to complete conditions or outstanding information requirements.
Time, effort, and lender relevance to a deal are all key factors in the commercial property financing process.
Spending too much time and effort focused on the wrong lender can cause serious problems to the business or property owner if funding must be in place by a certain time.
On the flip side, working with too many mortgage providers can be a bad idea as well due to the amount of work that goes into assessing a deal.
The best approach for securing an optimal commercial mortgage in the time you have to work with is to enroll the services of an experienced commercial mortgage specialist to guide you through the process and get you focused in on the most suitable lenders for your requirements.
Click Here To Speak With Commercial Mortgage Broker Joe Walsh For A Free Assessment Of Your Options
Commercial Bridge Loans
“Commercial Bridge Loans Secured By Real Estate Property Can Be Key
Sources Of Financing”
When I speak of a commercial bridge loan, I’m referring to a mortgage on commercial property that is no longer than 18 to 24 months in duration.
The primary source of commercial bridge loans is private mortgage lenders.
There are two basic categories where a commercial loan for bridge financing would apply with category one being for the direct financing of land for purchase or refinancing of an existing mortgage, and category two being where a commercial mortgage is registered against a property in first or second position to pull out a certain amount of equity for some unrelated purpose.
In both cases, the amount of funding required is only for a short term, either to complete a transaction or buy time until a cheaper form of financing from a bank or institutional lender can be secured.
In many cases, a commercial bridge loan may not just be the best option available, but the only one available in the time period you have to work with.
Commercial property from bare land, partial construction, to completed real estate assets can be used for security for bridge financing, keeping in mind that the less developed the property, the lower the lending amount as a percentage of the property value will likely be.
For a private mortgage lender, the keys to bridge financing is quality and amount of equity offered as security, and the plan for repayment of the loan at the end of the commercial bridge financing period.
Private money sources can provide commercial bridge loans from as low as $100,000 to as high as $10,000,000. Sources for larger deals will be fewer as most private lenders work in a funding range below $2,000,000.
The key benefit of commercial bridge financing is the ability to get a certain amount of funding into place within a defined period of time. Many times with commercial properties, banks and institutional lenders can take considerable time assessing the deal which may take longer than the time you have to work with.
A private mortgage commercial loan will typically take much less time to get approved with funding to follow shortly there after.
While private money typically is going to cost more than a bank or institutional bridge loan, lower cost money won’t do any good if it can’t be put in place in a timely fashion which typically is a requirement of a commercial bridge financing transactions.
If you need to secure a commercial bridge loan or want to know more about your potential options for commercial property financing, I suggest that you give me a call so we can go through your requirements in detail and then discuss different approaches you can take to secure commercial bridge financing.
Commercial Mortgage Strategy
“Here’s A Commercial Mortgage Financing Strategy To Consider With
New Property Acquisitions And
Mortgage Refinancing Scenarios”
A commercial mortgage financing strategy for acquiring a property or refinancing an existing commercial mortgage can involve both a private mortgage and a bank or institutional mortgage.
Let me explain.
If you or your business have a strong enough lending and credit profile to qualify for a bank or institutional commercial mortgage, then the only thing that might be working against you in terms of getting financing arranged and in place is time.
Bank and institutional lenders that provide commercial mortgages follow a very deliberate and methodical process to go through a request for financing, validate key sources of information, issue a commitment to fund, and fund the deal. All of this takes time which can range from 60 days on the short end to 90+ days on the long side of things.
If you’re in need of financing to close a purchase or refinance an existing mortgage, you may not have enough time to get an institutional property loan in place.
Instead of risking losing out on a good buying opportunity or incurring additional costs when a refinancing is not completed in time, another solution would be to first acquire a private mortgage against the commercial property in question.
Private lenders, on average, can make financing decisions much faster than a bank or institutional lender.
By trying to get a private mortgage in place first, you increase the probability of meeting your deadlines.
Then, once the new private mortgage is in place, you can spend as much time as is going to be required to locate and secure a bank or institutional mortgage for the long term needs of the business.
The private money serves as a bridge loan to allow you to meet the immediate needs while buying time for you to locate the best available commercial mortgage deal on the market.
Yes, a private mortgage is likely going to be a bit more expensive than a commercial mortgage from a bank. But in many cases, the difference between bank and private on commercial properties can be less than you might think.
In addition, the private mortgage is likely going to be interest only payments versus a fully amortized payment, so you will also get a cash flow advantage during the time the private money is in place.
And getting the right commercial mortgage deal when you’re not forced to take whatever you can get due to time pressure can save you a considerable amount of money over time making whatever the incremental cost of a private mortgage small by comparison.
If you’re in need of commercial mortgage financing and don’t have a lot of time, I suggest that you give me a call so we can quickly go over your requirements and review private mortgage options that may be available to you in the market.