Looking to purchase or refinance a commercial property?
You’re probably looking at a number of commercial lender alternatives and comparing their benefits and drawbacks.
But before you spend too much time reviewing each lender option available, you should have a clear understanding of your specific financial needs. That way, you can cut through the clutter and identify the loan solution that works best for your business or investment strategy – period.
Creating a wish list is also valuable because it can help you organize your thoughts and determine which loan attributes are truly important for your success.
Ready to get create your commercial mortgage checklist? Use these 5 attributes to get started.
If you’ve attempted to secure financing with your local bank, you know that the approval process calls for a great deal of documentation. The problem is that many investors and small business owners just aren’t able to provide the tax returns and other documentation traditional lenders require.
In other cases, the prospective borrower is simply not willing to provide tax returns – typically because the returns don’t accurately show the current income they are generating.
Does this describe your current situation? Don’t worry – alternative solutions do exist.
Just make it a priority to seek out reduced documentation loan programs. These programs vary depending on the lender, but the general goal is to provide borrowers with alternative ways to qualify for a commercial loan.
As an example, if you choose a reduced documentation solution for your multifamily property, you may only be required to provide a rent roll and operating statements at the start of the transaction process.
At Commercial Direct, we even give business owners the opportunity to provide their business bank statements in lieu of tax returns.
Inability to provide sufficient documentation is one of the leading causes of rejection for prospective borrowers, so be sure to add “reduced documentation” to your wish list if you’re worried about qualifying.
It’s only natural to hunt for the most affordable solution when seeking commercial mortgage financing. Just keep in mind that if you prioritize rate above all else, you may end up with a loan that fails to check off many of your other wish list items.
That’s because low rates are typically accompanied by low flexibility. For instance, if you feel you need a reduced documentation option, you will almost certainly not be able to secure the lowest possible interest rate.
As you make your wish list, take some time to prioritize the attributes you wish your commercial loan to have. If you have a complex set of needs, it may be necessary to de-emphasize rate so that you can check off more boxes in other areas.
Commercial loan transactions nearly always take longer than residential ones, primarily due to the complexity of the property appraisal process.
But you don’t have to settle for a transaction that takes months to complete. Alternative lenders are often able to shorten the process – especially if they are able to approve loan requests without involving a full loan committee and actively work to streamline the underwriting process.
When does speed really matter? Consider the business owner who must refinance so they can avoid the balloon note on their current maturing loan, or the investor who is working to meet a seller’s tight deadline on a purchase within a competitive market.
Keep in mind that an expedited commercial loan transaction will typically come at a higher cost – if you’re not in any real rush, it may not make financial sense to prioritize speed over other attributes.
They say that every commercial property is unique. While the houses in a particular neighborhood might all appear identical, each commercial building in a city block may look completely different and serve a unique purpose.
The same can be said for commercial mortgages. When you consider all the variation that can come into play regarding loan purpose, property type and location, borrower credit history, and any issues having to do with the building itself, it’s easy to see how even experienced lenders are constantly faced with new and challenging financing requests.
Still, some lenders are more flexible than others. If you have already been turned down by a bank, you may want to slide “flexibility” to the top of your loan wish list.
How can you get a sense of a lender’s flexibility? Note their willingness to listen to your story.
One common issue that requires lender flexibility is property seasoning. Many traditional lenders won’t approve your refinance request until you’ve owned a commercial property for at least 2 years. If you purchased a property, quickly rehabilitated it, and are now looking to refinance at a lower rate, it may make sense to look for a more flexible solution that would not require you to wait as long.
Of course, the most flexible lenders offer higher interest rates. If your loan request is fairly straightforward, you could leave flexibility off your wish list and start your search with local bank lenders.
There’s no getting around it – a commercial mortgage transaction can be a complex process. That’s why it’s important to work with a lender that clearly communicates with you during each stage.
The good thing about this wish list item is that it has nothing to do with flexibility or affordability. You’ll just need to engage with enough lender alternatives so you can get a sense of what works for you and what doesn’t.
The bottom line is that you should feel confident about your lender’s ability to get you the funds you need within a reasonable timeframe. If they can’t clearly describe their transaction process and what they expect from you during your initial conversations, it may be smart to reach out to other options.
Putting it all together
You can certainly include additional items in your commercial loan wish list – just do some self-analysis to establish your specific set of needs.
The five attributes listed above are a good place to start, though:
- Interest Rate
- Transaction Speed
If you’d like to see how Commercial Direct stacks up in those areas, visit our Get Started page and tell us a little about your commercial loan request!
Zack North is the Director of Marketing for Commercial Direct. As a regular contributor to a number of top industry publications, Zack enjoys writing about topics that help investors and business owners approach commercial mortgage financing with confidence.