Commercial Mortgage Financing And Cash Flow
“How Commercial Mortgage Financing Can Be Influenced By Cash Flow”
Believe it or not, most banks and other institutional lenders do not consider themselves to be mortgage lenders, although the majority of the dollars they put out into the market every year have mortgage backed security and in many cases the use of funds was to secure a real estate acquisition or refinance an existing commercial property mortgage.
Institutional lenders consider themselves to be cash flow lenders with an emphasis on the cash a business generates and the strength of the overall balance sheet as primary borrowing factors. This can work positively and negatively in your favor depending on a given scenario.
If you have a strong real estate property, but cash flow that only marginally meets the banks debt serving requirements, you may still be able to secure a commercial property loan, but the loan amount as a percentage of the overall property value may only be in the 50% to 60% range.
In situations where the cash flow of the business is very strong, there are institutional lenders that will go as high as 100% financing against the commercial property value where part of the lending commitment is based on cash flow, not just real estate value. Of course a higher loan to value will likely come with a slightly higher interest rate, but when you’re already working with prime plus rates as a starting point, a slightly higher cost of funds is more than made up for with higher mortgage leverage.
Not all conventional lenders will consider higher ratio commercial mortgages, regardless of the cash flow, so the potential benefit of getting a larger mortgage will depend on which commercial lending program you’re applying to. Commercial mortgage financing in general typically will average a loan to market value ratio of around 65%. This is because income producing properties tend to have the established cash flow built into the property value already, providing little opportunity for a larger mortgage to be secured.
Determining where your commercial mortgage then best fits can involve quite a bit more than just a stated interest rate or repayment term. And the different types of commercial mortgage programs that you’re property could potentially be suited for can be hard to figure out unless you regularly spend time keeping track of what different lenders are doing with their programs and portfolios. One of the best ways to zero in on the most relevant commercial mortgage options is to work with an experienced Toronto mortgage broker with a track record of placing similar commercial property financing deals.
If you require commercial mortgage financing, or have some questions on the subject, please give me a call so I can assess your situation and get all your questions answered.
Click Here To Speak With Commercial Mortgage Broker Joe Walsh
About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel