Many of the most successful and powerful commercial mortgage lenders, as-well-as top commercial mortgage brokers avoid originating small balance loans. It is not easy to find a firm willing to underwrite a commercial mortgage with a loan amount of less than $1,000,000.00. As a borrower in need of a smaller loan, you may feel somewhat insulted by this circumstance, but if you take a moment to see things from the lenders point-of-view you will learn the key to getting your small balance loan through to closing.All the Work 10% of the PayA borrower is entitled to all due respect and a high level of service regardless of the size of the loan being requested. It is only right that every client receive the same time and attention as every other. The small borrower asks the same questions as the large. The paperwork and documentation for a $100,000.00 loan is identical to that of a $1,000,000.00 loan. The only real difference is the number of zeros on the application.As-far-as the lender is concerned, the amount of work and the effort involved in closing a small loan is exactly the same as closing a big one, but the compensation to the firm can be 10 times less! So for the company funding the loan, it’s simply a matter of economics; they can fund 10 loans for a certain amount of income or fund just 1 for the same amount of income. They will, invariably, choose to fund fewer loans with larger balances if they are successful enough to be choosey.What’s a Small Commercial Real Estate Investor to do?Even in this era of skyrocketing real estate values in the commercial sector there are still many, many buildings and building lots selling for less than $1,000,000.00. Knowing that lenders prefer large loans, how can a small investor get a low balance loan file through to close?Small Balance Lending is a NicheSome savvy business people have figured out that there is much less competition for small loans than for the big ones that everyone seems to fight over. Seek out small balance specialists. Sift through all the advertisements and all the search engine results and you will eventually find a lender looking for you just like you are looking for them.Every time you get a lender or broker that tells you “We don’t do loans under a million” just take the time to ask: “Do you know any good lenders who do?” You will get some good leads and if your deal is of high quality you will find someone to fund it.Make it Easy for ThemRemember, the reason a big lender doesn’t want your small balance loan is because they think it’s going to be a-lot of work for a little pay. Turn the equation around on them, make your loan look like easy and they will see a decent payday for a minimal effort.Do some research and have the documentation you know you’ll need readily available and let them know you will be very forthcoming. Don’t just submit an application, sell them your deal. If you have great credit, make sure they know it up-front. If you are putting down a healthy down payment, highlight that fact. If there’s ton’s of equity in your building point it out to them. If they believe your loan will sail through the system they won’t be able to resist originating it.Small commercial loans can be done. A little searching will turn up willing lenders, I promise. And, a little window dressing (as long as it’s honest) on your file will go a long way in getting it accepted.
Tag Archives: finance
How Business Or Commercial Mortgages Function
A commercial mortgage is a specialised commercial loan where the borrower has to put a real property as collateral against the loan. The lender has a legal claim over the property under a commercial mortgage loan until the loan has been fully repaid.Since this business mortgage is flexible and affordable, there has been a steady increase in the number of people applying for such types of commercial loan. The best part of such business and commercial finance options are that they can be structured according to the needs and requirements of your business.However, there are two most important aspects of commercial mortgage loans – interest rates and the repayment schedule that need to be considered while applying for a loan.Let us first focus on the two different interest rate options available in business and commercial mortgage loans:Fixed Rate:
On a fixed rate commercial mortgage loan, the interest rate on the principal amount is negotiated and agreed at the time of approval of the loan by closely examining the risk involved and the current market rates. Here the interest amount is the same until the loan is amortized. With a fixed rate loan, you need to pay a fixed interest rate and no matter how much the market rate fluctuates, it will not affect the interest rate you pay.Variable Interest Rate:
In variable rate commercial mortgages, the interest rate fluctuates during the payback period due to the changes that take place in the Bank Base Rate or LIBOR in the UK. As compared to fixed rate mortgages, here the interest rate is usually lower at the time of signing. The interest rate for each period is determined by the current market rate and a predetermined premium that remains constant throughout the life of the mortgage. The plus point of variable interest rate mortgage is that the borrower can save money when the market rate decreases but also risks paying more if interest rates increase.Now let us analyse the various types of repayment schedules:Commercial mortgage equal payments:
In this repayment schedule, you need to make equal payments during each period, be it on a monthly or quarterly basis for a particular time period. With each payment, you cover the interest and the rest reduces the principal.Commercial mortgage equal payments plus final balloon payment:
Here, the borrower needs to make equal monthly payments of the principal and interest for a very short period of time. After paying the last installment, the remaining balance is required to be paid in one go which is known as a balloon payment. In case you are unable to make the balloon payment, you can refinance the mortgage to postpone the balloon.Commercial mortgage interest-only payments plus final balloon payment:
In this repayment schedule, the borrower covers only the interest with regular payments, while the principal amount remains the same. At the end of the mortgage term, the balloon payment must be paid to cover the entire principal and any remaining interest.Commercial endowment mortgage:
It is similar to an interest-only mortgage repayment schedule with the only difference of the repayment of the principal which comes from the proceeds of an endowment. Endowments can be in the form of life assurance policy, personal or executive pension plan policy, or a personal equity plan.No matter which of the above mentioned interest rates and repayment schedules suit your business profile, always bear in mind that the longer you take to pay back the principal, the higher your interest payout will be.It is advisable to take the help of specialists, who can help you to design the appropriate business strategy and a detailed plan of your business finances. There are various business finance companies that can help you to study and compare various lending institutions to help you do thorough homework before you finalise the lender from where you can apply for a commercial mortgage loan.
Buyers Beware When it Comes to Financing Options
When it comes to securing financing for a small business, it may seem like there are many options out there, until you examine them closely. Many small financing opportunities are a great deal for the lender, but not for the small business. There are various programs that may appear to offer financing, but there are strings attached that make these programs a bad choice.One method used is to offer small business financing that involves credit cards and limits. The lender offers your small business a credit card with a specific credit limit that can be used to make purchases. This option is not ideal for a few reasons. First of all credit card interest s generally much higher than a line of credit or loan, so your business can end up paying huge interest charges. Credit cards can not meet many of your small business needs, because salaries for workers, more space or a new building, and even equipment and supplies may not be purchased with these credit cards. This financing method benefits the credit card lender, because they receive high interest for the financing, and the small business is stuck paying exorbitant interest rates for credit that can only be used for certain things, many of which do not include helping the business grow and expand.Another common small business financing options is to use a program that offers vendor credit. This is another common program available, and it is usually not that helpful for most small business owners. Vendor credit is great if the small business needs something from a specific vendor, but this credit is not versatile and can not help potential growth or expansion needs. This financing option can not help the business meet expenses, or make purchases anywhere but through the vendor offering credit. This financing option has a very limited scope, and is usually not very beneficial to a small business in these tough financial times.The third financing option that many small business owners use, which may have not be very helpful, is to use financing programs that offer a low cash line of credit. These programs do offer cash financing options, but in very low amounts. For a small business, this may be as effective as not getting financing, because the amount may not be enough to keep the business going.Instead of using traditional financing programs, there is a unique new small business financing programming option available. This program requires minimal documentation, offers cash financing anywhere from one hundred thousand dollars to one million dollars for small businesses, and requires no credit check, financial business documents, or tax returns. This financing program can help your business stay open without all the hassles and documentation that other financing options require, and you get the financing your small business needs in cash, which is how it can do the most good. This option is far better than the other choices, and can help you keep your small business profitable and growing instead of becoming stagnant and closing.