Developers Use Credit Tenant Lease Financing to Fund Construction of Single Tenant Buildings

Even as the general economy shows some tepid signs of improvement, we remain in an extremely challenging credit market. Traditional lenders such as banks, Wall Street investment houses and insurance company conduits, are still being very coy about funding loans. They're worried about their capitalization levels and the possible effects of coming regulatory reform. In-short, they are hesitant to close deals until some semblance of clarity returns to the debt markets.

Construction financing has been particularly hard to come by during this credit squeeze. All commercial real estate was over built during the first 6 years of the decade and financial institutions are in no hurry to add to existing inventory by funding construction deals. Lenders have shunned development loans for the last 24-36 months. Many, many good projects sit dormant due to the lack of liquidity in the construction capital markets.

Among all the doom and gloom however, one segment of the commercial construction industry has been bucking the trend. It turns out there is plenty of capital available to build office buildings, retail outlets and even light industrial facilities as long as the building in question is triple net (NNN) leased to a single "investment grade" tenant. (BBB- or better by S&P)

Financing NNN leased development is possible because of a special type of lending known as credit tenant lease (CTL) financing. CTL is a unique funding platform designed specifically to fund the purchase, refinance and construction of commercial property that is (or will be) occupied by a single tenant with good credit. CTL loans are underwritten based on the structure and length of the lease and the financial strength of the tenant rather than the underlying value of the building or the credit of the borrower. Unlike traditional lenders CTL lenders count the lease and the income it assures as the main collateral that secures the loan.

CTL mortgages are originated by commercial real estate investment banking firms who underwrite and sell private placement mortgage bonds in-order to fund the loans. The bonds are purchased by pension funds, endowments, insurance companies and other institutional fixed income investors.

CTL loans tend to be long-term, fixed rate fully amortized, commercial mortgages. Most CTL lenders place no restrictions on loan-to-value and will write loans to 100% LTV subject to a very low debt-service-coverage ratio (DSCR) of about 1.01-1.05. Likewise, there are no restrictions on loan-to-cost (100% LTC) for construction deals. The result is the highest possible loan amounts for property owners and developers.

CTL lending for construction and development is true construction-to-permanent financing; there is only one funding and only one closing. Mortgage payments are "interest only" while the building is going up and begin to amortize only after the tenant moves in.

The most popular investment grade tenant (and the easiest to finance with CTL) are US government agencies such as the US Postal Service, the Social Security Administration and the Department of Homeland Security. Government agencies all have very good credit ratings because it is assumed that the Federal Government will stand behind their debt. Developers building federal court houses for the Department of Justice or administrative buildings for other government agencies will enjoy easy access to the funds they need.

There are also ample funds immediately available for private sector buildings as-long-as the tenant is financially sound. The retail giant Wal-Mart qualifies for CTL lending along with The Home Depot and Kohl's stores. The drug store chains Walgreens and CVS are both expanding rapidly and are both eligible for CTL financing. McDonald's is the largest investment grade tenant in the food service industry.

All commercial mortgage lending has been curtailed during this economic downturn and the recovery, while it may be underway, is many months in the future. During this time of turmoil in the credit markets, it is encouraging to know that some lenders are still making deals and funding loans. CTL financing continues to be a dependable method of financing investments in single tenant, NNN leased buildings, including construction and development.

Collateral Loans

Collateral Loans, what are they? A collateral loan is simply borrowing money, while pledging something that you already own as collateral.

What this means is you borrow money but you have to give something in return for that money until the money is paid back.

Do you literally give the collateral away?

No. Let's say you have been an independent dump truck driver for the past 5 years and you are ready to purchase another dump truck to expand your business. You own your truck because you only took out a loan for 4 years.

Your dump truck is valued at $50,000 and you are willing to use the truck as the collateral. The finance company will place a lien on your dump truck, lend you the money for the new dump truck that you are buying and will release that lien only after you have paid the loan back.

This type of Small Business Financing is actually quite easy to be approved for if your collateral qualifies and holds enough value for the dollar amount that you need.

What can be used to qualify for this type of loan?

Typically the finance companies are going to look for good, hard collateral such as construction equipment, heavy duty vehicles, etc.

If you happen to default on the loan, it will be much easier for the finance company to sell your old and new dump trucks (yes they get both if you don't pay them back) to someone else than it will be to sell a commercial freezer (not good collateral for a collateral loan because it doesn't hold a high re-sale value).

If collateral loans can be easier to get approved for than traditional Small Business Financing, why isn't everyone doing it? That's an easy answer. They typically come with much higher rates!

Collateral loans are typically used by people who have less than desirable Fico Scores, which is why the finance companies ask for the security of using the additional collateral. If you do not pay back the loan, the finance company will take the equipment that you purchased, as well as the collateral that you pledged to get the loan.

How much will the finance company give you based on the above scenario of a $50,000 dump truck and how long do you have to re-pay the loan?

Well, it really depends on the finance company and the over-all current value of the truck. You can get anywhere from up to 50% of the current value, all the way up to 100% of it's current value.

Finance companies will generally go out to 5 years but keep in mind, the longer term you take, the more you will probably pay.

The reason you may pay more is because it's taking longer for the finance company to get their money back, while the value of the collateral is going down. We recommend taking the shortest term that you feel comfortable with.

A couple of questions you may want to ask yourself are will you make enough money to pay your monthly payment and put money in your pocket at the end of the day?

And, do you feel it is necessary to make this purchase now even though the rates and terms may be less than desirable?

Only you know if now is the time for whatever the loan will be used for so if you feel confident and are willing to put up your collateral in order to do what you need to do, what are you waiting for?

Sometimes business opportunities come when you are not expecting them and if you have no other way of jumping on whatever this train may be, you may just have to pay the higher price with a Collateral Loan.

Types of Commercial Loans That Are Available

Commercial loans are obtained for many different business ventures. For this reason there are different types of commercial finance. They in general, is for the purchase of property. It is like a loan to buy a home. The property becomes the collateral to secure the loan. Upon the pay off of the loan the business owner will then own the property. Additionally, like a home loan, a business owner can use the equity in their property to get future loans.

The first type of commercial finance is called an owner-user loan. This type of finance would be for property that will be used to conduct business. Some examples include a doctor buying a building to house his practice or a bookstore owner buying a building from which to conduct their business. Most of these are start up for a business just starting. One issue with these loans is that since the business is just starting there is no record of the business dealings. The bank will use the business owner's personal credit to qualify them for the loan.

The second type of commercial finance is an investment property loan. This type is used for businesses where the actual property will be used to make the revenue for the business. Some examples are a building which will house a shopping mall or an apartment building. Many of these loans are start up loans, like with the owner-user loans, so again the lender will base their decision upon the business owners personal credit. However, many of these loans are for business owners that own a chain of buildings all operating the same basic business. In this case the business would be established and the loan could be done under the business name.

The last type is a hard money loan. These loans are for development projects. Some examples are older buildings bought for rehab or a group of houses bought to convert into apartments. These types of loans are often given to development or building companies. These companies fix up the properties and then resell them. These loans usually are set up to avoid early payoff fees and other fees associated with paying off a loan early. The banks enforce these fees so they do not lose out on making the interest money they would should the loan be paid for the full term.

Whatever type of commercial loan a business owner is taking out, they should go to the lender prepared. They should understand the basics of the type of loan they are wanting so they can properly be prepared to negotiate terms. They will also be able to look over the terms and make an informed decision about it.

Commercial Vehicle Financing

Commercial vehicles precisely are all vehicles used for different sorts of commercial purposes. Any vehicle which exceeds a certain prescribed weight is considered to be a commercial vehicle. Therefore trucks, vans and buses used for business purposes are termed as commercial vehicles. The use of commercial vehicles is inevitable in all sorts of business. But owing to their high prices, many business organizations seek aid of commercial vehicle financing.

Commercial vehicle financing helps individuals and corporate customers to acquire any type of commercial vehicles. There are various options available for financing commercial vehicles. Catering truck financing is one among them which helps to acquire food trucks, lunch wagons etc. The catering business people require these vehicles to supply food to several locations. These trucks are highly useful in construction sites, road sides, fairs and other places. They are helpful in providing hot meals or cold beverages. Due to their special feature of keeping food hot or cold, they can be pricey. Hence commercial vehicle financing is essential for purchasing such type of vehicles.

Commercial recreational vehicles are important in any mobile business. These vehicles cater to the unique requirements of the business and so they are costly. Sometimes commercial recreational vehicles can be modified into mobile classrooms, offices, salons etc. Many of the traditional lenders many not understand the need for commercial recreational vehicles. Therefore they may not be ready to offer financing to acquire them. However there are some genuine companies that have experience in financing commercial vehicles. They can offer financial assistance to get the vehicle for any type of mobile business. Since these vehicles can help generate revenues, investing in them is not an expense but a great way to increase profitability.

Mobile on-site office truck provides a wonderful way to work at remote sites. The fast developing business world depends not only on phone calls for communication but also on emails, fax and other effective communication methods. It is also necessary to send or receive files, reports etc regularly. Hence it is essential to maintain the essential advanced facilities in mobile on-site office trucks. These vehicles come in different configurations to suit different office needs. Due to their specialized functionality, they carry high price tags. Therefore commercial vehicle financing is often required to acquire them.

While seeking the help of financing companies to acquire commercial vehicles, you need to select the company that has vast experience and knowledge in the field. This helps you get financing at low interest rates. There are some valid financing companies that have experience in financing commercial vehicles. You can approach them for getting the essential help.

The genuine financing companies accept online application form submitted by you immediately. You can get approval quickly and sometimes you can acquire the commercial vehicle you want on the same day itself. There would be no cumbersome application procedures and so many business owners find it comfortable to get financing commercial vehicle. They can repay the amount in easy monthly installments.

Using a Factoring Company

One of the side effects of the economic crisis is that more companies need business financing while less institutions were willing to provide it. Because of this, companies started looking for other options to business loans. One of the options that has gained substantial traction in the last year is invoice factoring.

Invoice factoring is a form of financing that is often offered by factoring companies. It's ideally suited for companies that are selling goods/services on net 30 to net 60 days, but can't afford to wait for payment. This is a common problem since most medium sized companies have immediate expenses and don't have the necessary capital to wait for payment.

Factoring companies solve this problem by accelerating payment of your invoices. They act as an intermediary who buys your invoices and pays you for them immediately. This provides your company with the necessary cash flow to pay operating expenses and handle new orders. The factoring company, which now holds the invoice, waits for your client to pay for the invoice and settle the transaction.

A factoring company usually buys your invoice in two payments. The first payment, called the advance, is usually 80% of the invoice. The remaining 20% is called the reserve and is held to cover any invoice discrepancies and potential underpayments. Once your client pays the invoice in full, the factoring company sends the second payment, which is the 20% reserve less the factoring fee.

Factoring fees are determined by the credit quality of your clients, the volume of financing that you need, your industry and invoice diversification. They vary in range but they are usually a specific percentage of the purchased invoices.

One of the big advantages of invoice factoring is that factoring companies consider the credit quality of your invoices to be your biggest asset. This means that medium sized companies that have a solid roster of clients can usually qualify. However, to qualify for factoring your invoices need to be free of any potential encumbrances or liens.

Commercial Loan Processing Explained

It is important to understand the process behind commercial loan processing to gain an insight into how a financing institution assesses and decides on whether or not a loan is granted. While commercial loans provide an attractive source of income in terms of interest, lenders exercise a lot of care in evaluating borrowers to ensure that funds lent out are recovered along with the earnings.

Applying for a Loan

Lenders basically pre-qualify potential borrowers by assessing their background and capacity to pay. The process starts by initial gathering of background and personal information such as purpose for the loan, your income and existing debts. To formalize and commence the loan process, you must then fill-up and complete a loan application form.

Requirements to Expect

Take note of the documentary requirements that will go with your loan application. This may require some consideration and time to gather. A business loan for example, may require a business profile that gives a general background of your business. In addition, a business plan that clearly describes how your business will be run and how it is projected to perform financially will be required.

Standard requirements for different loan types will include personal financial statements listing all personal assets, liabilities, as well as your personal tax return for the past three years. Another fundamental requirement is collateral. Collateral for a loan may include assets such as real estate and stocks or bonds, hard goods such as equipment, and other personal assets and guarantees. This is meant to give the lender some guarantee that you will be committed to seeing your loan repaid. It also offers assurance that should you fail to meet your loan obligations, they can recover from your assets the money that they have lent out.

Processing Your Application

A loan officer will review your application and documentary attachments. Your loan officer will review your credit reports, collateral documentation, as well as your income information. Some additional documentation may be requested in order to support the information in your loan application so that all details may be properly assessed and verified.

Loan Underwriting

Once all documentary attachments are deemed satisfactory, your loan application will then be submitted to a loan underwriter or a loan committee. They will review, assess, and eventually decide whether your loan will be approved.

At this time a processor will present you with a letter of intent or term sheet for signing. This document includes the amount of financing, terms of payment, type of security or collateral, and other key terms. The decision to approve or reject is usually made within five days. Expect some requests for you to provide additional documentation during this underwriting process.

You will be required to sign the letter of intent and along with it, you may be asked to give a check to serve as a deposit, and to pay for some third-party reports used in the underwriting process such as appraisals.

Finally Getting Your Loan

Once all the conditions and requirements are satisfied, the loan application package is resubmitted to the loan committee for final approval. Upon loan approval, you will be required to sign the final loan documents. If you have a closing agent (an attorney or escrow company representative for example), they will receive the closing documents and coordinate the signing of all necessary papers. They will also coordinate the transfer of funds, record the deed transfer and mortgage, and order title insurance.

With all requirements met and all closing documents in order, your loan can finally be released! This can be done in several ways - electronic wire transfer to your designated account, or issuance of a cashier's check or draft in your name.

Apply For Commercial Loans using our FREE Commercial Loan Application to compare rates and contact multiple commercial lenders. We have over 300 commercial real estate lenders, business and construction lenders as well as private equity groups waiting to help you. Best of all, GlobalBX is FREE!

Who Are The Hard Money Lenders In The New York Area?

Finding hard money lenders is slightly easier in the New York area than in other areas. One of the primary reasons for this is that these lenders typically try to operate in familiar territories and in an area like New York where there is plenty of real estate for consideration. So here lenders will also have many more customers rather than the relatively sparsely populated areas. This naturally creates a greater 'pull' for private individuals to come and do business here.

Hard Money lenders are the private individuals and companies who will lend to you to buy a house - for instance, when the other more traditional financial organizations will not. This can be due to a host of reasons which can range from bad credit ratings to the desire to purchase the home in a remote area with which the traditional organizations are not comfortable.

A few tips to find Hard Money lenders in the New York area:

1.The phrase Hard Money lending sounds a bit intimidating and you will find that the same thing is known by other names. So instead of looking for Hard Money lenders look for Creative Financing in the New York area or look for Participative Financing while browsing through the web.

2.Go through the classifieds of the local newspapers and there again instead of scanning for Hard Money lenders look at the description more closely. Watch out for words which talk about loan problems, private money, dream home etc.

3.Call up your mortgage broker and ask if they have contacts to private investors or if they are aware of individuals who may know hard lenders.

4.Make full use of brokers in this case. On the web while you may not find a whole lot of Hard Money lenders in the New York area directly, if you do a search you will find that the search results will give you some links to blogs of individual hard lenders. Many of these individuals are not in the business directly but will know people or companies who can often help you.

5.When you are looking for Hard money lenders you may (from time to time)end up getting in touch with a loan predator, these are individuals or companies who make the deal in such a manner that there is a high chance of you defaulting on your payments. You must be wary and ensure you are comfortable with their reputation by seeking the contact numbers of other individuals they have provided loans for in the vicinity of New York and where possible, go and meet them. Another way is by ensuring that the equity you have in your house remains around 50% and in most cases you should be safe.

Can I get a loan to buy commercial property in New York?

While hard money lenders usually lend for the purchase of a home or a residential property, many firms are now coming up with ways and means with which they can creatively design a loan so that people can buy commercial land or property as well.

What are the terms of these loans?

Typically the interest rate is higher, around 12% - 18% and the loan is a first mortgage in almost all cases with the balloon payment due after one or two years. These loans are characterized by their high fee and relatively lower loan to value ratio. Apart from the interest rate, there is a fee which can go up to 8% of the loan amount. The hard loan money lenders want to keep their loans safe at all times and for that reason they need to ensure that you have sufficient equity in your house in case of default they can sell and recover their loan.

All in all, even at the risk of stating the obvious, hard money lenders should be your last resort but they are not loan sharks and can be used to get away from a tricky situation if you assess your requirements and your financial position correctly.

Stated Income Commercial Loans, Pros and Cons

Stated income commercial loans have been a decent option for borrowers that do not show enough income on their tax returns to qualify for bank financing. These loan programs allow the borrower to "state" both their personal and business income, though the level of documentation varies from one lender to the next. In addition stated income commercial loans can be especially attractive to businesses with a cash component (like restaurants, automotive repair, etc) that enables them to get long term fixed rate financing with higher leverage and longer amortization periods than normal.

As mentioned, the level of "stated" varies from one lender to the next. For example, on investment properties some lenders would still ask for all leases, rent rolls, year to date financials, personal financial statements, etc. but would not ask for personal tax returns and or real estate entity tax returns. On owner occupant transactions, business tax returns may not be required though personal tax return would be as well as, proof of insurance, copy of existing mortgage statement, would still be required. There are a few lenders out there that design the loans to be more as the name implies, and require virtually no documentation, though the borrower pays for this in the rate and prepayment penalties. In general the less documentation asked for, the more expensive the transaction for the borrower.

Positive aspects

Amortization schedules of 30 years are not uncommon. Compared to the typical bank loan at a 20 year schedule this saves the borrower cash flow by spreading out the loan. Fixed periods comparable to residential loans, like 30 years, 15, 10 and 5 are often available. In contrast most bank loans do not go beyond 5 year fixed sometimes 7 years but that is rare.

There is a harsh provision in most bank loan documents. It's referred to as the "call provision". It gives the bank the right to call due the borrower's loan whenever and for whatever reason the bank feels justified - even if the borrower is not in default on their loan. Although hard to believe this clause is in virtually every bank mortgage. In short it helps the bank protect their investment and allows them to "pull out" if they lose confidence in the borrower's ability to keep the business going/paying their loan. This clause not included in stated income loans.

No reporting to the stated income lenders after the loan closes. This ties into the above, as most banks will require monthly or quarterly statements. If from the financials they see a negative trend they hold the right to call the note or change the terms of the deal.
Negative Aspects

The two obvious negative features of these loan programs include higher rates and expensive prepayment penalties. Rates are normally app. 2% above comparable banks rates though exceptions can go in both directions. A few lenders are closer to roughly 1% over and with the longer amortization schedule the borrower can enjoy a lower monthly payment when compared to bank financing. On the other side, the rate can be double digit for borrowers with poor credit and special use properties.

Prepayment penalties can be brutal with this loan. Typical bank pre-pays are often 3% for 3 years or an annual step down like 5%, 3% 1% as in the case of the SBA 7a loan. It's not uncommon for the stated loan to be as high as 10% for 10 years. On top of that some lenders demand lock out periods of 3 to 5 years.

Borrowers should take their time evaluating their options, and pay attention that their planned holding period matches the fixed rate and prepayment penalty period. Also, this sector of the industry has been taking it on the "chin" with the credit crisis and the makeup of this loan program continues to evolve. Borrowers may want to look at the SBA 7a program as future income projection are allowed as well as DCR are low as 1.1 are permitted as well. Take your time and evaluate all your options as you do not want to make your situation worse by going with a stated income commercial loan that's not a good fit for your situation.

Business Property - A Look At The Advantages And Disadvantages Of Buying

Nearly every type of business needs a premise from which to operate - In the case of a small business it may be possible to work from home however as most things do eventually grow and expand, it may be necessary to obtain larger working facilities.

The majority of businesses will require their own premises and are generally faced with the option of either renting or buying. The obvious choice for many would be to buy, finance allowing however there are advantages and disadvantages to both sides.

Advantages Of Buying

Retention of ownership - most businesses will need to take out a loan in order to purchase property. In the case of taking out a mortgage, the business is able to raise the capital without resorting to selling a share in the company, either to an interested party or by way of issuing shares. In this case the original owners will have retention of both ownership and control. The mortgage lender will have the right to charge interest on the loan amount outstanding however it will have no interest to a share in the business or its profits. The lender has an interest solely in the property and is only permitted to call in the loan in the event of borrower default.

Taxation - Businesses are permitted to make mortgage interest payments with pre-tax money that is deductible for tax purposes as expenses.

Cost and cash flow management - A commercial mortgage allows a business access to finance that would not usually be available. They can offer a degree of flexibility in designing a repayment scheme to suit the needs of the business, which may include fixing the repayments for a set period of time. Mortgage repayments tend to work out lower than rental payments and the borrower in this case will know what the payments will be in advance - this fixed payment can often aid the business with cash flow and managing costs. Businesses that rent a premise can be exposed to market conditions which could result in payment fluctuations on review.

Security of tenure - Businesses and individuals that rent have very few guarantees beyond the end of the current agreement.

Asset appreciation - This of course is by no means guaranteed however property has long been viewed by many as a very sound investment. The business or individual will have an asset which can potentially grow in value, just like residential property - this could subsequently increase the value of the business.

Financial flexibility - Taking out a loan by way of a mortgage to buy a business premises can free up money held in the business for other purposes. Borrowing money outside of a mortgage could prove to be more costly. It may also be possible to remortgage in order to raise finance in the future by using the available equity.

Retirement - Many people decide to hold property in a pension plan which can offer a tax-efficient way of buying the premises and boosting pension benefits.

Disadvantages Of Buying

Financial difficulty - Like any other mortgage, the mortgage lender will hold a legal charge over the property. Nearly all businesses meet financial difficulties at some stage which could potentially result in mortgage payments being missed. In the event of default the lender may take steps to repossess the property - if this happens then it would leave the business with nowhere to operate from.

Relocation - In the event a business needs to relocate, it is relatively easy to terminate a rental agreement. In the case of an owner occupier, the process is of course far more complex.

Flexibility - A business that rents has a far greater amount of flexibility that a business that is tied to a mortgage. Buying would only make sense if the business is confident over its future which encompasses two main factors - relocation & business expansion.

Drain on Capital - When it comes to getting a deposit, this can mean a huge drain on the business capital as this is usually taken from the profits or reserves.

Maintenance and upkeep - The owner of a property has management responsibilities that a tenant would not usually have - maintenance and upkeep of a property is a constant process and can prove to be very expensive.

Commercial Loan Interest Rate - Negotiation Strategies

Cutting even a half a point off of a commercial loan's interest rate can save a business thousands - even millions - of dollars over the life of a loan.

It is possible to look to obtain a lower one for your business loan, whether the loan is existing or new.

Strategy #1

A good interest rate negotiation strategy is to obtain multiple quotes for your specific business loan request from at least two other lending institutions. This can create a "bidding war" provided your financials and company background are both sound.

Even if you've been with your current bank for years, notifying them that you are shopping for a lower rate can create a scenario where they step up to the plate to match or beat a competing offer. Since it is important to approach the bank in a way that will not offend them, if they are made aware that you are simply shopping rates in the best interest of your business they should fully understand.

Strategy #2

A business banking department relies very heavily upon having a healthy amount of deposit accounts. You can use this information to your advantage. Consider negotiating with the bank for a rate decrease in exchange for your agreement to maintain on an ongoing basis a certain dollar amount of deposit accounts with the bank.

There are many other negotiating tactics, and these are two that have proven to work in the past because they are in the bank's best interest. First, by warning that you are shopping for rates as opposed to going with another bank unannounced, you have put the bank in a position to be able to have the loan for themselves before it is lost to a competitor. The second strategy gives the bank great value by virtue of your agreement to maintain a certain level of deposit accounts with the bank.

Strategy #3

Another proven strategy that is in both the bank's interest and yours is to ask the bank if they are willing to present you with options. For example, you could see if they will give you the choice of a fixed interest rate or a variable interest rate. If you are able to convince three banks to give you rate options, you will be in a position to choose from at least 6 different scenarios for your business loan, rather than just the one that most borrowers are faced with.

These strategies can help a business to obtain a lower interest rate on a commercial loan.

You are welcome to share this report in its entirety and unedited. All links must remain intact. No information in this report should be interpreted as advice, as the report is meant for informational purposes only.

For a First Time Buyer - Commercial Mortgage Tips!

A mortgage loan may have certain hidden charges, beware of these. If you are a first time buyer it is advisable to go through a guidance manual which will help you understand the intricacies of a mortgage. It takes some time of yours to go through the manual and it is a must as you are pledging your valuable collateral against it.

You are considering a long duration loan, see if you want to stretch your loan period for long? Say about 15 to 25 years would be ideal for those who can't afford huge equated monthly instalment every month and would want to pay less but over a stretched period of time. If you have sold your shares and property and have a lot of cash all of a sudden, you can decide to pay your mortgage earlier than that period. But, cross check with your bank what is the penalty you need to pay in case you pay back early. Just cross check with the rate of interest you would save by paying off early. If it is really lucrative, then you must try taking this wise decision.

It is advised that you read the fine print carefully so that there is no confusion. You must be aware of the options open to you. If it is for pub finance, you must be aware that there are pub brokers, bankers and brewery owners to help you out. Getting your liquor supply and your loan from the brewery owner would be a good idea for your bars, pubs or night clubs. They may offer you discounts on liquor supply as well as your loan interest rate.

The Logistics of Obtaining Commercial Loans For Apartment Buildings

Getting a commercial loan for an apartment building is considered one of the easier loans to get with respect to other investment properties. This is due to the fact that commercial lenders focus primarily on the subject property as the repayment source with the borrower being a secondary repayment source. As apartment buildings have historically been a very stable asset class, they typically can get some of the best lending terms.

Many property investors focus on single family homes, rather than apartment complexes, because it is often easier to manage. Financing can be difficult to obtain from the commercial lenders for single family homes, and it can be difficult to get the business off the ground. However, many investors recommend that when borrowing from commercial lenders, you take the focus off yourself, as it is with single family homes, and put it on the property, like an apartment building.

Often, even with little capital, a loan will be approved, because of the high return on apartment buildings, and the low risk from defaulting on a commercial loan. Before you go out and try and purchase an apartment building, you should know what qualifies as an apartment building under commercial loan guidelines. One to four family dwellings are usually not considered commercial loans; this would include duplexes and fourplexes. However, if there are five or more units in the building, this would be considered a commercial loan.

Apartment buildings can have tremendous profitability if managed correctly. For example, if you have a gross income of $100,000 from rental income on a building, and you deduct $60,000 for operating expenses and vacancies, you still come away with a $40,000 profit off of it. Dividing by a 7 percent cap rate, will give you an estimated value of the property, which would come close to $570,000. Often commercial lenders will look at statistics, like this, to determine the cash earning potential on apartment complexes. Naturally, it is not hard to see why these types of loans are approved so quickly and easily.

Now, just because it can seem relatively easy to get a commercial loan for an apartment building, this does not mean you should not do your research. Going to a commercial lender with a detailed plan of action for the apartment building, along with your own cash projections, will make the process move much quicker. Doing your research can also benefit you. For example, if you are going to fix up the apartment property, you will therefore increase the value greatly. A property with a high vacancy can have the greatest upside potential; however it will probably require that you put more money down that you would have to with a stabilized property. This is because most lenders underwrite to a debt service coverage first and a high vacancy can limit your supportable loan amount. As with any loan, researching and being prepared when meeting with the lender, will only benefit you and help your business become more successful.

Daycare Center Loans - Current Conditions

With major national daycare center lenders like UPS and CIT now out until further notice, many childcare centers owners and prospective owners are searching for financing options - and are finding few reliable programs.

One of the biggest issues here for both independent and franchised daycare centers is that most banks will no longer consider Tenant Improvement Loans. I.e. loans to build out leased space. Instead, most banks (that are still funding loans) want the collateral of the commercial real estate.

This can create a couple of different issues for the owner or franchiser. Number one, it can run right against the business model of the franchise. For example, the franchise might have a smaller location requirement and the process of finding land, going through the zoning/permitting, constructing the facility, etc don't make sense, based on their smaller location model.

The other issue for the individual owner is that the capital injection will normally be greater, not on a percentage basis, but rather on a dollar amount. For example, on a leased facility, the operator would be expected to come in with 10% -15% cash of the tenant improvements/equipment costs. So, if these costs were $700,000, most franchisee have been expected to come in with $70,000 -$105,000 "out of pocket".

If on that same deal, the operator decided (by choice or forced into due to the credit crisis) to own the facility, they would need roughly $250,000 to $375,000 i.e. 10% -15% of the total project cost (In this example, say $2,500,000). This difference in dollar amount is obviously substantial and will eliminate the opportunity for many hopeful daycare center owners.

For operators that can come up with the required cash, owning the facility is often their best route, regardless of the credit crisis. For one, their monthly payment is typically lower than if they leased.

This increase in cash flow is paramount for any business whether daycare or not. Also, additional benefits such as depreciation and real estate appreciation are two classic advantages of owning. And of course, every month the borrower chips away at the loan balance building long term wealth rather than simply paying rent.

All in all, there are still options out there for daycare centers financing. However many industry players will have to be open minded and flexible with adapting to the current standards if they want to get there daycare centers funded.

Commercial Loan Refinance - Current Market Conditions

Trying to get a commercial loan refinance closed right now is difficult as the capital markets continue to take it on the "chin." The small balance arena, meaning mortgages between $400,000 - $5,000,000 are definitely not immune as guidelines tighten with in this sector. Beyond the obvious lower loan to values, increased debt coverage ratios, etc there is a real sense of confusion as to what the rules are among all the players involved; from huge banks to small brokers.

Normally guidelines are known and clearly set. Brokers or other professionals are able to qualify a loan and figure out which lenders would be interested. However, it now seems banks are generally struggling with what they want to lend on. Property types, loan amount, pricing, etc, are changing on a daily basis. Two months ago this was not the case.

The biggest 'victim" of this seems to be special purpose properties, as they have quickly been pushed out by many lenders. Hotels, automotive related, restaurants, self storage etc have lost probably 40% of their former loan options. Many banks have just stopped quoting on these properties.

Another issue that has put the brakes on many commercial loan refinances has been the "small town restriction". Many of the largest lender in nation will no longer look at deals if the population of the town the property is in is not over 50,000.

Rates have also been very touchy issues as of late. Normally margins that lenders charge on top of an index is around .3% from one bank to the next. Meaning for example if you where to get 5 quotes they would all be within .3% of each other. Oddly we are now seeing rates across the board. We recently saw a difference of 2.5% among 4 different banks on the same loan.

It seems that the current conditions, and how those will affect an individual's options on their commercial loan refinance will be at the mercy of the market. Hopefully we will soon see an end of the subprime mess and the effects it's had on the cmbs market.

Commercial Real Estate Loan Strategies - The Value of Using Stated Income

The use of "Stated Income" (no tax returns and no income verification) commercial loans is a critical strategy to avoid several commercial mortgage loan problems. For example, many borrowers will simply not qualify for a commercial real estate loan if tax returns are used due to high business expenses (and low net income). This article will describe what differentiates a Stated Income business loan from a conventional or traditional business loan.

Very few traditional banks use Stated Income for a commercial real estate loan. Many/most commercial lenders will perform a thorough income verification as part of their underwriting process. Most non-traditional commercial lenders do not require tax returns or any income verification for a Stated Income commercial loan. Traditional bank commercial loan underwriting conditions will typically include copies of tax returns as well as a requirement to sign IRS Form 4506 which authorizes the lender to obtain tax returns directly from the IRS. Some lenders require this form in addition to current tax returns. The more devious use of this form is when lenders make a point of not requiring tax returns but separately ask the commercial borrower to sign this form. The most common explanation in asking for this form will involve the words "routine request". This will usually occur just before the final closing and be further characterized as "one final small detail". In reality IRS Form 4506 is neither "routine" nor a "small detail". The use of this form is a lending practice that can have a potentially detrimental impact on a commercial borrower's financial interests. In contrast, for most non-traditional commercial lenders, IRS Form 4506 is not required for their Stated Income business loans.

The value of using Stated Income does not end when the commercial loan closes. Many/most traditional banks require income verification/audits even after the commercial real estate loan closes. Most commercial borrowers won't believe this until it happens, but many traditional commercial loans will have covenants stipulating that the lender must receive financial data even after the loan closing and that the loan can be recalled (forcing the commercial borrower to pay the bank back early) if the audit of this data is not satisfactory to the lender. Most non-traditional commercial lenders do not verify income either before or after the Stated Income commercial loan closes.

I have prepared a Special Report entitled "The Top 5 Reasons that Banks Decline Business Loan Applications and the Top 5 Strategies for Converting a Declined Loan into an Approved Loan". One of those five reasons is that loan underwriters find something on a tax return that disqualifies a borrower under the bank's lending guidelines. This "something" will frequently be insufficient net income, but when loan underwriters look at tax returns, there are many other possibilities which produce a similar result. If the commercial borrower is applying for a Stated Income business loan, this situation will not occur because tax returns will not be included in the commercial loan underwriting process.

Many commercial borrowers should be interested in strategies for preventing a lender from obtaining their tax returns directly from the IRS or preventing a lender from forcing a long-term loan to be repaid early. Stated Income commercial real estate loans provide a viable commercial financing strategy to alleviate concerns about these issues. Stated Income business loans are no longer just a strategy to help a commercial borrower that could not obtain a commercial loan any other way. Stated Income commercial loans are now increasingly viewed as a a vital method to protect the commercial real estate borrower's overall financial interests, both before and after the loan has closed.

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