q: How much can I borrow?

As a general rule the most you can borrow against investment and commercial property is 80%. The only exception is for owner-occupied business properties that obtain financing through an SBA (Small Business Administration) loan program. Some lenders and programs limit maximum Loan-to-Value (LTV) to as low as 60%-70%. "Lite-Doc" programs may limit LTV to as low as 50%-60%. LTV varies by property type, location, condition, etc. How much you can borrow depends on the value of the property and the income stream that it can generate. Lenders want some cushion built in to the loan for both the value and the income-stream. Therefore they will lend less than the full value of the property and will require that the loan payments be less than the income the property is capable of generating. To estimate how much you can borrow for a specific property, try one of our calculators. To learn more about LTV’s and debt coverage requirements, check out our commercial loan school.

q: Why can’t I borrow more than 80% of the property value?

While many borrowers are used to borrowing as much as 90%-100% of the cost of a home or even more, commercial property is different. Lenders consider commercial and investment property to be riskier and therefore will not lend as much of the property’s value. Commercial/Investment property is subject to wider fluctuations in value, more environmental contamination issues and higher default rates than residential property. Borrower’s are generally more diligent in repaying their home mortgage than any other type of debt because their home is literally the roof over their head! Lenders have learned from experience that investors are much more attentive to their property and to the repayment of their commercial mortgage if they have substantial cash equity in the transaction and are therefore participating fully in the risk.

q: How long does it take to close a loan?

We can generally give you an assessment of your situation in our first conversation. You can get "Pre-Qualified" as quickly as 2-5 days. For "Lite-Doc" programs, approval and closing can take place within 3-4 weeks. Full-documentation loans that require third party reports such as appraisals and environmental inspections usually take between 30-60 days to close. Providing us with complete information and documentation early-on can speed the process considerably.

q: What are the closing costs for a commercial loan?

The categories of closing costs for a commercial or investment property are similar to a residential mortgage, but can be more expensive. Appraisals are more detailed and can cost up to several thousand dollars because the appraiser must use several different valuation methods to determine the value of a property. Environmental inspections or insurance are often necessary and may cost from several hundred to several thousand dollars as well. Other costs are similar to a residential mortgage loan and may include: lenders’ origination fees, application fees, underwriting and document preparation charges, attorney’s fees, survey, title insurance, escrows for insurance and taxes, etc. Total closing costs may range from 2% to 8% of the loan amount.

q: Why do commercial property appraisals cost so much?

A residential property appraisal for an owner-occupied home usually only costs a couple of hundred dollars because the valuation is based primarily on the sale of comparable properties in the area. It is fairly easy to make adjustments to the value of one home to estimate the value of another. Commercial and income producing properties, however, are not as easy to compare. There are vast differences in construction, design, materials, and functions that the property serves. Also, the appraiser must base the valuation on the income stream that the property is capable of generating and the replacement cost of the structure as well as the sale of comparable properties. Commercial appraisals are more time consuming and complicated, thus they can cost up to several thousand dollars. The price of appraisals is competitive and is set by the appraiser, not the lender or broker.

q: What’s a "Low-Doc" program?

Some commercial lenders offer "Low-Doc" or "Lite-Doc" programs. These programs require less documentation, verification and paperwork than a fully documented loan. The lender takes more risk when making a loan with less information, so "Low-Doc" programs generally carry a higher interest rate than a fully documented loan. But they are useful if a borrower is in a hurry to close a loan or cannot provide evidence to fully document income or assets.