Menu
Commercial Lending can be complicated… There are many different types of loans, in addition to many requirements and factors commercial lenders take into effect to determine eligibility for commercial loans.
So, we asked one of our preferred lenders, Vice President of Commercial Banking Leonard Henderson with b1 Bank, to give us the inside scoop and break it down for us.
And here is what we found out…
Types of commercial loans offered by b1 Bank particularly (and many other commercial lenders) include Real Estate and Construction Loans, Mergers and Acquisitions Loans, as well as SBA Lending.
In addition, many lenders including b1 Bank will offer equipment financing, working capital loans and business credit cards that are backed by MasterCard.
Let’s briefly go through each of these loan types before we talk more about requirements, eligibility and rates.
A commercial real estate loan is a type of mortgage loan used to purchase, refinance, or to renovate a commercial property. These types of loans are utilized to finance properties for business purposes. Often, they are made to corporations, developers and even an individual at times.
The main difference between a commercial loan and a mortgage loan for personal real estate is that the loan is secured by a lien against a commercial property instead of a residential one.
Interest rates on commercial loans are typically higher than those on residential loans, generally by about 1 percent. More about interest rates will be discussed below.
A construction loan is used to help you fund a new construction project. Whether this is for multi-family, an apartment building, high-rise, commercial office building, warehouse, flex space or another type of project, you will typically work with your lender to create a “draw schedule” based on project milestones.
Often, lenders will require certain completions and inspections before releasing the next “draw.” Additionally, when you take out a construction loan, you will usually just pay on the interest of what has been received to date.
When securing a construction loan, you can expect the lender to require many items from you, the borrower. These may include building plans, General Contractor bids, timelines, etc. Below, we will discuss what eligibility and requirements the lender will also take into consideration to approve this loan.
However, once the construction project is completed and the full amount of the loan is due, you can look into securing a commercial mortgage – the property can serve as collateral for the mortgage and the mortgage loan can be used to pay off the commercial construction loan.
These types of loans are generally used by business owners to buy out their partners, to bridge short-term requirements, to help companies grow or for businesses working on expansion.
These loans are sometimes used when the collateral for the loan will be the property or asset being acquired. Since these types of purchases typically cannot be made utilizing the company’s regular cash flow, businesses will use a merger and acquisition loan when they are potentially growing fast or engaging in mergers and acquisitions.
They’re also sometimes used by companies that utilize large and expensive equipment, like construction companies.
Acquisition loans can help businesses to acquire vital assets (even including another company) that can help them grow their income and businesses over the long-term.
Loans guaranteed by SBA may be small or large and can be used for many business purposes, including long-term fixed assets and operating capital.
Some loan programs set restrictions on how you can use the funds, so check with the lender when requesting the loan.
This type of loan generally has competitive terms – rates and fees comparable to non-guaranteed loans, come with counseling and education that provides support to help you start and run your business, and also may have lower down payment, more flexible overhead requirements and no collateral needed for some loans, according to sba.gov.
These types of loans come with certain requirements, such as what a “business does to receive its income, the character of its ownership, and where the business operates.”
Contact your lender or learn more about types of SBA Loans here.
M&D Real Estate’s Preferred Lender b1 Bank, in addition to many lenders, also offer these types of financing and loans that can help business owners:
M&D Real Estate’s Preferred Lender b1 Bank, in addition to many lenders, also offer these types of financing and loans that can help business owners:
Lenders look at many factors and they all carry different weights and can affect the lending process and ultimately approval and terms of the loans.
The following are some of the main considerations:
When we asked Vice President Leonard Henderson what they are seeing in rates right now, here was the response provided as of October 2022:
“With WSJ Prime increasing several times this year, our commercial loan rates are carefully decided based on the credit request and other factors; it is not a one-rate-fits-all approach. We also put our clients in the driver seat with the option of having a floating rate or fixed rate on their credit request.”
According to Vice President Leonard Henderson, b1 Bank is apt to loan on most types of properties, including, but not limited to, commercial, multi-family and single-family.
They view an acceptable Loan-to-Cost and/or Loan-to-Value as a determining factor:
Loan-to-Cost (LTC) is a measurement in commercial real estate that looks at the ratio between the total loan amount and total cost of the project. It means dividing the loan amount by the construction cost to compare the financing amount with the cost of a property. For instance, if the cost to complete a construction project is $1 million and the loan amount is $700,000, then the loan to cost ratio would be 70 percent.
On Loan-to Value (LTV), as discussed above, our lender typically requires 80 percent. The (LTV) equals the amount of the commercial mortgage divided by the market value of the property as determined by a commercial appraisal. Typically, Loan-To-Value Ratios for commercial real estate loans are capped at 75 to 80 percent in most instances.
Questions on a Commercial Property or the Commercial Lending Process?
Contact one of our M&D Commercial Agents today who can advise you further on the process related to your specific situation, explain what to expect, and the next steps to take…
© 2022 M&D Real Estate — All Rights Reserved | DMCA Notice | Accessibility | Sitemap
By using this site, you agree to our Terms of Use | Privacy Policy