We work with many commercial real estate professionals, many who often find themselves fielding complicated inquiries about commercial lending from clients interested in purchasing or financing commercial properties.
Since we are longtime experts in the commercial real estate financing world as a trusted direct lender and commercial loan brokerage. We figured it would be helpful to compile a list of common questions and answers CRE professionals tend to get from clients related to financing.
1. “What is the Difference Between Commercial and Residential Lending?”
Commercial lending involves financing non-residential properties for business purposes, such as office buildings, retail centers, industrial spaces, and hotels. In contrast, residential lending deals with loans for purchasing or refinancing residential properties, such as homes, condos, and apartments with 1-4 units.
2. “What Types of Commercial Properties Can Be Financed Through Commercial Lending?”
Commercial lending can be used to finance various property types, including office buildings, retail spaces, warehouses, industrial facilities, multifamily properties (apartment complexes), hotels, and specialized properties like healthcare facilities and self-storage units. Additionally, real estate assets can be leveraged to receive loans to develop land, develop or rehab real estate or utilize to support the growth of a business.
3. “What Are the Typical Down Payment Requirements for Commercial Loans?”
Down payment requirements for commercial loans vary based on the lender, borrower’s creditworthiness, and property type. Generally, commercial lenders may require a down payment ranging from 20% to 30% of the property’s purchase price. The more equity available from the borrower the more lending options will be available. The lower the leverage the lower the risk to the lender.
With Innovative Capital, we connect borrowers with both traditional and alternative financing nationwide to present a menu of options based on the client’s specific needs and financial situation.
4. “How Are Commercial Loan Interest Rates Determined?”
Commercial loan interest rates are influenced by the cost of capital set by the federal reserve. Also, factors such as the borrower’s creditworthiness, loan term, property location and condition, market conditions, and the overall economic climate. These rates can be fixed or variable. Finding the best rate can be a daunting task. Leveraging our knowledge and lending network provides a strategic advantage to get the right loan without the headache of having to do the work yourself. Applying for a loan is challenging in itself. Applying with multiple lenders is a full-time job. Leverage our knowledge, network, and tech and achieve a strategic advantage.
5. “What Documents Are Needed to Apply for a Commercial Loan?”
Preparing a strong commercial loan application typically involves gathering financial statements (income statement, balance sheet) for the business, personal financial statements of key principals, tax returns, bank statements, property information, and business plans.
However, the exact requirements may vary by lender. At ICC, we consider ourselves as a “loan concierge,” where we guide the client through the entire process. We provide various loan options, detailed information, resources, and support from start-to-finish.
6. “How Important Is the Borrower’s Credit Score in Commercial Lending?”
Credit scores play a significant role in commercial lending. They help lenders assess the borrower’s creditworthiness and risk. A higher credit score generally leads to better loan terms and a higher likelihood of loan approval for most lenders. At Innovative Capital, we work with all types of clients with various financial backgrounds and have secured strong loan deals for clients with less-than-great credit scores.
7. “What Is a Debt Service Coverage Ratio (DSCR) and How Does It Affect Loan Approval?”
The Debt Service Coverage Ratio (DSCR) is a metric used by commercial lenders to evaluate a property’s ability to generate enough income to cover loan payments. A higher DSCR indicates better cash flow, reducing risk and increasing the likelihood of loan approval.
8. “What Are the Main Differences Between Recourse and Non-Recourse Commercial Loans?”
Recourse loans hold the borrower personally liable for the loan, allowing the lender to pursue the borrower’s personal assets in case of default. Conversely, non-recourse loans limit the lender’s recourse to only the collateral (the property), safeguarding the borrower’s personal assets.
9. “What Are Prepayment Penalties, and Do They Apply to Commercial Loans?”
Prepayment penalties are fees imposed on borrowers who pay off the loan before its scheduled term. Some commercial loans may have prepayment penalties to compensate the lender for potential lost interest.
It’s crucial to clarify prepayment terms before finalizing a commercial loan. With ICC, we do our due diligence to scrutinize every detail of the loan to make sure it is clear – and favorable – to our clients. Additionally, we work to understand the business or investment goals of the client so we can structure the financing to support the client’s needs. Avoid the frustration of paying extra fees by making sure you have the right loan structure for your overall goals.
10. “Are There Government-Backed Loan Programs Available for Commercial Lending?”
Yes, the Small Business Administration (SBA) offers various loan programs that facilitate commercial lending for small businesses. These programs provide government-backed guarantees, making it easier for businesses to access financing with competitive terms and rates.
Our team has a wide nationwide network of professionals in both traditional and alternative financing. If your client was turned down by your bank, chances are we can connect them with another bank for an SBA loan or other business loan if they are seeking traditional financing to support your project.
Access Easy Commercial Financing Options for Your Clients with Innovative Capital
You won the client, now what? Navigating the complexities of commercial lending is easier with a trusted partner. When you are ready to support your client in financing their CRE project, get in touch with us at Innovative Capital. We are a trusted direct lender, capable of funding loans in as little as 7 days. Serving clients and referral partners both locally and nationwide, we have a proven track record, having funded over $500 million for our clients since our inception in 2007.
Our extensive network and meticulous attention to detail enable us to find the best hard money option tailored to your clients’ specific needs. We handle the heavy lifting, allowing you to focus on other aspects of your business.
Ready to empower your clients with smart financing solutions? Get a free quote by entering your details below, and one of our team members will be in touch shortly. We’re here to help your clients secure the funds they need swiftly and efficiently.
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