Valor Commercial Loan Options | Valor Lending Group
Are you interested in acquiring a Valor Commercial Loan?
Valor Lending Group is here to help with all of your commercial loan needs!
What is a Commercial Loan?
Finding the best commercial mortgage loan is a whole different ball game than 1-4 unit residential mortgage lending.
The primary difference lies in the ways in which the properties are valued. Whereas traditional residential properties are generally valued based on a sales comparison approach, commercial properties are valued based on current and future income-producing potential. The income produced by a commercial property is the driving factor behind a commercial property lenders funding decision.
Determining a commercial property’s qualifying income can be a difficult task, involving a detailed look at the property’s financial situation. Again, the types of commercial properties can vary widely-for example, they can range from apartment buildings, industrial warehouses, or retail strip malls-and therefore, underwriting a commercial loan can be as complicated as the financials of the underlying property.
In addition, of relevance to commercial loans are the financials of the business or businesses operating at the commercial property. At least in the owner-occupied context, because of the second key component of commercial loans-evaluating the strength of the borrower, also referred to as the transaction’s “sponsor.”
The options for ways to structure a commercial loan vary. Commercial mortgage loan terms are more expansive than available for 1-4 unit residential properties and can quickly become overwhelming even for savvy real estate investors.
Key Distinctions: Commercial vs. Residential Property Loans
Commercial loans are riskier and more complex than residential loans. Here are some of the key distinctions between residential and commercial property loans.
1) Underwriting – Evaluating Strength of Transaction
Commercial loans focus mostly on the current and future income-producing potential of a property (as opposed to focusing primarily on the income of the borrower on the residential side).
2) Down Payments & Loan-to-Value (LTV)
Commercial property lenders will generally approve a loan-to-value (“LTV”) that is less than what borrowers are accustomed to on the residential side, meaning higher down payments and lower leverages.
3) Commercial Loan Costs
Commercial loans will typically (although not always) come with higher rates, a higher down payment, and shorter terms (which will increase monthly payments). Interest rates and costs vary depending on the lender and LTV, Debt Service Coverage Ratio (DSCR), and After-Repair-Value (where applicable).
In addition, commercial loans often come with appraisal and environmental/toxic report costs, which can be significant.
4) Commercial Loan Terms & Prepayment Penalties
Commercial property loans have terms of generally 6-36 months for hard money commercial loans, and 5-20 years for permanent commercial loans. The best commercial mortgage hard money loans generally consist of interest-only payments, and permanent commercial loans often have an amortization schedule that is longer than the loan’s term. In both cases a balloon payment is due at the end of the loan’s term. Finding the best commercial mortgage loan in the hard money sector is not as hard as someone may think.
Since 2010, Dodd-Frank has prohibited prepayment penalties on owner-occupied loans in the residential 1-4 unit arena. But for commercial property loans, prepayment penalties are more common.
5) Identifying the Sponsor in a Commercial Loan
Commercial loans are often made to business entities, such as an LLC, corporation, partnership or trust, which is also called the “sponsor.” The sponsor is the entity or individual to whom the loan is made. If the sponsor is an entity, sometimes commercial property lenders will require an individual (or individuals) to guarantee the loan, called “guarantors.”
A personal guarantee means the guarantor is personally responsible to pay back the loan in the event of default, even if a business entity is the holder of the note. This is considered a recourse loan, which allows the lender to look to the personal assets to satisfy the loan in the event of default.
In a non-recourse loan, on the other hand, if the sponsor fails to make payments, the lender’s only remedy (recourse) is to take back the property and sell it.
Common Types of a Commercial Loan
There are many types of commercial mortgage loans, which can be broadly grouped into four categories: (1) “Full Doc” Conventional Commercial Loans; (2) Stated Income & Bank Statement Commercial Loans; (3) Hard Money Commercial Loans; and (4) SBA (Small Business Association) Loans).
1) “Full Doc” Conventional Commercial Loans
Conventional commercial loans are offered by FDIC-insured institutions such as banks or credit unions. Any type of commercial property can qualify for a conventional loan.
These loans often have the best rates, but they are also among the hardest to qualify for. For starters, conventional lenders require global debt-to-income (DTI) ratio calculations for the sponsor and/or guarantor, as well as minimum debt service coverage ratio (DSCR) above 1.15 of even higher depending on the loan program.
These loans often require a personal guarantee, with business and personal tax returns requested from the sponsor and/or guarantor showing at least 2 years of profit history.
2) Stated Income & Bank Statement Commercial Loans
Bank statement and stated income commercial loans are outside of conventional commercial underwriting guidelines and are not repackaged and sold on the secondary securities market. Instead, they are held on lender’s portfolios, why they are sometimes called “portfolio loans.”
(a) Commercial Bank Statement Loans
Commercial bank statement loans contain a similar analysis as is used on the residential owner-occupied bank statement loan side. Instead of tax returns, the sponsoring entity can supply 12-24 bank statements showing sufficient cash flow to make payments on the requested commercial loan.
Commercial bank statement loans are an incredible financing vehicle for small business owners, whose tax returns often do not accurately reflect a sponsor’s true income or purchasing power, because many business owners take advantage of all available legal deductions.
(b) Commercial Stated Income Loans (P&L Only Loans)
As an additional alternative to using tax returns or bank statements to qualify for a commercial property loan, sponsors may take advantage of commercial stated income loans. Sometimes referred to as “P&L Only Loans”, in which income is simply stated using a CPA-prepared profit and loss statement.
Commercial stated income loans typically have slightly higher rates due to the increased risk lenders take on by dispensing with income verification requirements. The trade off for sponsors is that without this requirement, underwriting moves quicker, and commercial stated income loans can fund quicker than more traditional conventional commercial property loans.
3) Commercial Hard Money Loans
Every well-equipped borrower’s toolbox should have a reputable commercial hard money funding source. Conventional lenders have loan committees and a more involved underwriting process, both of which can delay the process and do not allow for the same flexibility commercial hard money loans can offer.
Commercial hard money loans are a great option when a quick close is needed, a property is not currently at its maximum income-producing potential, or the sponsor is unable or unwilling to produce tax returns and other financials.
(a) Speed – Same-as-Cash Purchasing Power
One of the main reasons to use commercial hard money loans is their speed. Hard money loans can be closed much quicker than conventional or other more traditional loans often in 2-3 weeks, sometimes quicker.
Some of the best commercial hard money lenders can make their underwriting decisions and issue a term sheet on the first phone call.
(b) Temporary Financing Needs – Value Adds & Property Stabilization
Properties that are at their full income-producing capacity are described as being “stabilized.” Most conventional and other traditional commercial property lenders require a property to be stabilized in order to fund a loan. Commercial hard money lenders, on the other hand, do not.
In addition, Commercial hard money lenders will lend funds to be used for renovation and/or stabilization and to mitigate the increased risk they charge higher interest rates and points than conventional commercial mortgage lenders.
Secondly, Commercial hard money lenders will set maximum loan amounts based on the anticipated stabilized value of a commercial property. The sponsor has to demonstrate a clear path to stabilization. For example, a commercial real estate investor might plan to purchase an underperforming strip mall with many vacancies. By doing a gut rehab and filling the finished units with tenants paying the new market rents for the property.
Finally, Commercial hard money lenders are willing to provide temporary financing in these situations based on increased return on investment coupled with a demonstrated viable exit strategy. Once the property has reached its full income-producing capacity, or becomes “stabilized,” the hard money loan can be paid off in one of two ways.
- Sell the property
- Refinanced the property once stabilized.
(c) Sponsor Financials Currently Less Than Perfect
Commercial hard money lenders are far less concerned with credit issues and across the board have less stringent underwriting guidelines.
There are times when a sponsor is simply unable to provide documentation traditional lenders require, whether due to the nature of their business, or the fact that tax returns may not be an accurate reflection of the current financial situation.
Hard money lenders are willing to look past credit issues within reason. This is possible if there is enough equity in the property or a borrower has enough cash reserves to service the debt.
4) SBA Commercial Mortgage Loans
The U.S. Small Business Administration provides guarantees for certain commercial property loans, through two loan programs: SBA 7a Commercial Loans, and SBA 524 Commercial Loans. These loans are available only for owner-occupied commercial properties. For example, hotels and self-storage facilities are eligible, while apartment buildings are not.
SBA Loans can often be used to purchase not only land and existing structures, but also to make lot improvements, renovate, or even construct new facilities.
The benefits of SBA Commercial loans include reduced down payment requirements and serving businesses in underserved markets. Sponsors can finance up to 90% of the property cost, plus improvements.
While SBA commercial loans often offer competitive and even below market rates and terms, they involve a lengthy approval process that can take up to 120 days or longer. Owners that do not have a lot of liquidity for a large down payment would look for this type of loan.
5) Other Commercial Mortgage Loans
There are as many different types of commercial property loans, and are as unique as the many various types of commercial properties. A few of the more commonly seen commercial loans include:
Freddie Mac Multifamily Loans. These are available for loan amounts above $1,000,000, and for properties in large metropolitan areas. Freddie Mac Multifamily Loans offer competitive rates and also incentives to provide affordable income housing.
Life Company Loans. These loans are for well-qualified borrowers, and high-quality stabilized properties are preferred, although construction and development projects are considered. Life company loans are made by life insurance companies or groups of life insurance companies and are generally the most conservative of all commercial property loans.
CMBS Loans. Commercial Backed Security Loans (“CMBS Loans”) are non-recourse loans that are pooled together and securitized by offering bonds collateralized by the financed properties. These do not require tax returns or global cash flow analysis.
Call or email me for immediate attention to your scenario!
Valor Lending Group can fund your fast-hard money loan up to $10mm in as little as 7 days often without an appraisal.
Please do not hesitate to call or email me with any scenarios.
I look forward to an opportunity to demonstrate my prompt and professional service.
Recap of our Loan Products:
- Hard Money Loans (20% down / minimal documentation) Typically Fund in 7-10 days.
- Stated Income Loans (Great for business owners and self employed ) No tax returns!
- 100% financing is available (we can cross collateralize other properties if there is enough equity)
- Valor VA Home Loan 100% financing up to $1.5MM
- Rental Property Loan – No tax returns or DTI calculation! Based on subject property cash flow – No DSCR Coverage needed!
- Flipper & Rehab Loans (Flip a property with one of our many options)
- 2nd Position Loans up to $5mm
- Raw Land & Lot Loans
- Ground up Construction for spec homes, custom homes and commercial ground up.
- Farms, Vineyards, Ranches and Agricultural Properties (25-30% down)
- Manufactured Housing / Mobile Homes (20% down / 600+ credit score)
- Acreage Properties
- Commercial Loans up to $500mm
- 3% & 5% down Conventional Loans– LPMI (Lender paid mortgage insurance)
- Foreign Nationals Loans (no social security or residency required)
We Also Offer
- Conventional Conforming Loans
- High Balance Conforming
- Jumbo Loan Financing to $10 Million / 10% down Jumbo to $1.5mm
- FHA, USDA
- Reverse mortgages up to $1 Million Value
- Cash Out Refinancing
**Rates and terms subject to change without notice**
We look forward to the opportunity to serve you!
CONTACT ME TODAY for immediate attention to your scenario!
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