If you’re in the market for a commercial loan, whether it’s an investment, a refinance or you’re just trying to get pre-qualified to begin your search, then read on, we have some answers for you. First, know about the different types of commercial mortgage lenders who are able to assist you in getting your loan. Commercial mortgage lenders range in type from large commercial banks to private individuals who invest in trust deeds. So, let’s get started.
Portfolio lenders create commercial mortgages with the intention of holding the loans in their investment portfolios. These lenders can often offer consumers greater flexibility in the loan granting process than lenders who make mortgage loans with the intention of selling them. The two most common types of portfolio lenders are commercial banks and life insurance companies.
CMBS Conduit Lenders
Commercial Mortgage Backed Securities (CMBS) are a type of security investment secured by commercial mortgages. CMBS are generated by “conduit” lenders, who originate commercial mortgages with the idea of securitizing them, arrange them into asset pools, and then selling standardized sections of these pools to investors on the open market. The interest payments on the properties securing the CMBS offerings are passed through to the investors as interest income.
Sub-prime lenders specialize in making loans to people whose low credit scores prevent them from obtaining financing through conventional commercial mortgage lenders. Subprime lenders may be owned by banks, and the loans they generate may also sometimes be securitized. Money that is loaned does not meet “prime” standards, which puts these loans into the riskiest category of loans typically sold in the secondary market.
The collapse of the real estate market is often blamed on the huge number of subprime loans processed over the last few years.
Private Investors and Funds
These commercial lenders are also sometimes called “private” or “hard money” lenders. One of the differences between these lenders versus institutional lenders is that the loaned funds come from private individuals or a group of private individuals, instead of from a company’s assets.
The other difference is that private lenders are willing to receive loans with higher levels of risk and maybe even significant variability in return for a higher return rate on the investment. For example, loan-to-value ratios for hard money loans are often under 65% and credit scores, if required, are usually under 500.
Borrowers should also realize that there are other sources of capital besides their local bank. For example, private or subprime lenders may be good choices for individuals who have been turned down by banks because of low credit scores or little collateral. Depending on individual loan needs, one of these sources will likely be a good fit for you.
Finally, there are refinancing and Small Business Administration (SBA) loans. Refinancing is used to pay off any old debt from the money of a new loan that uses the same collateral. Usually, the borrower can choose to refinance when interest rates are lower or terms of the new loan are better than the original.
The purpose of SBA’s Loan Program is to assist small businesses in getting the credit that they need to get started. However, applicants must first meet SBA’s definition of small business.
So what commercial properties use these various loans? Quite a large variety. Some examples of commercial properties are apartments, shopping centers, malls, office buildings, warehouses, car dealerships, day care centers, golf courses, convenient stores, facilities, theatres, health care facilities, motels, raw commercial land, casinos, churches, gas stations, medical buildings, subdivisions, and more.
Find good commercial mortgage lenders as they can be the key to your businesses success or failure. Never hesitate to consult with your commercial real estate broker regarding lending referrals and term recommendations. If they’re up on current markets then they will typically know what the latest and greatest deals and interest rates are.
These tips are provided by Pete Baldwin, designated broker and owner of Platinum Realty Network with offices in Scottsdale and Flagstaff, Ariz. With over 25 years of experience in business and real estate, Pete specializes in country club communities and second home investments, including large commercial portfolios. He also owns an Arizona branch of a family-owned, Montana-based company Baldwin Log Homes – Arizona Territory and has become the area leader in full- custom, handcrafted log homes in Northern Arizona.