Commercial Mortgage Loan Rates, Commercial Loans, Mortgage Commercial Loans California, Washington
Getting a long term business loan for sizable sum, enough money to buy an office
building, an apartment building, or other facility to run a business:
Character Counts!
The first thing a lender is going to look at is "the character of the business
owners, how they pay bills, both personally and in the business," says Don
Fracchia, senior vice president of the business banking group of
Wells Fargo bank. There is no separating business from personal
finances. "When we look at underwriting, we can't, and don't, separate
individual income and the small business (income)," says Fracchia. "Some owners
retain wealth in the business, others retain it personally."
Commercial Property Loan
When you apply for a commercial property loan, perhaps as much as $1 million, a
lender gives close scrutiny to the payment habits and behaviors of small
business owners. The tough criteria for conventional loans set by lenders
has led a good number of owners to seek the support of loans backed by the
U.S. Small Business Administration. The SBA does not provide you
with the loan directly, but they guarantee the loans made by SBA-approved lenders across the country. Providing the loan would
be totally up to the lender to decide whether a borrower needs a
government-guaranteed loan. If you are dealing with lenders that have SBA
experience, will make the life much easier and can result in speedy
prequalification, or advice on how to get a financial house in order to qualify
for a loan.
Small business loans and lending is booming!
Small business lending is a big business! The
Business Loan Center, one of the SBA's preferred "non-bank" commercial
lenders, reported making loans of $96 million in 1997, more than double the
year before, says David Redlener, manager of the servicing department at the
New York-based lender. "The bulk of our business is in SBA loans."
What does a lender need to see in order to agree to a loan?
Lenders start with a financial history, usually three years for the business and
two years for the individual owners. They also look at the credit history,
owner equity in the business, collateral and cash flow. Not only is a real
estate appraisal required, commercial property loan is generally financed at a
75 percent loan-to-value (LTV) ratio, which on a $1 million property could be
as much as $250,000. commercial loans typically come with no prepayment penalty
and can come in fixed or adjustable rates and they are driven by the term of
the loan, whether 5, 10 or 15 years. Lenders generally charge a 1 percent or 2
percent loan fee. However, an SBA-backed loan can have a term of up to 25
years, says SBA spokesman Mike Stamler. "An SBA-guaranteed loan is also based
on cash flow more than collateral."
Two SBA Programs
The SBA has two programs that can be used for a business property purchase.
First is the basic 7(A) loan Guaranty Program, with a maximum 25 year term and
a 75 percent guarantee up to $750,000. For long term loans over $50,000, fixed
or adjustable rates can run as high as 2.75 percent above the lowest prime
rate. There are also no balloon payments, prepayment penalties, application
fees or points permitted with 7(a) loans.
The other option is the 504 Certified Development Company Program, which
involves a nonprofit corporation set up to contribute to the economic
development of its community or region. CDCs work with SBA and private sector
lenders to provide financing for small business and help create and retain jobs
in the area. 504 program involves a financing deal in three parts:
-
A 10 percent down payment
-
A private lender loan covering 50 percent of the purchase price
-
A 40 percent second loan secured from the CDC and backed by the SBA, up to $1
million in some cases
Ask SBA for help
If you have any questions from SBA in regards to the commercial loans, call
1-800-8-ASK-SBA.)