What do lenders consider when reviewing a commercial loan request today?
- Borrower must have a good credit rating. A minimum FICO credit score of 680 is typically required. Lower scores may be acceptable on a case-by-case basis and with compensating factors.
- Borrower must have good liquidity and net worth. Minimum net worth should equal the loan amount. Minimum liquidity should equal six months worth of principal, interest, taxes and insurance.
- Situations where an owner is looking to pull cash out after a short period of ownership are highly scrutinized.
- Borrower must have vested equity in the project. 100% financing, and the like, are no longer available.
- Borrower should have experience owning and managing properties similar to the property being mortgaged.
- Property should be located in an established or emerging market with a minimum population of 50,000. Area should not be undergoing any significant declines in population.
- Excessively rural areas will be highly scrutinized.
- Area should exhibit diverse employment and/or economic base.
- Property must be located near, and easily accessible to, major highways/freeways, employment sources and other demand generators.
Condition of Property
- Newer construction is preferred.
- Older properties in good repair, or those that have undergone recent renovations, are acceptable.
- Remaining useful life of the property must exceed the length of the amortization period.
- Property should not require major repairs or suffer from deferred maintenance, unless satisfactory reserves are established.
- Property should be free of any environmental hazards or risks.
- The property should show strong operating performance with no material declines in revenue or
net operating income over the past two years.
- The property’s occupancy should be at or above the local market’s average occupancy with no material declines over the past two years.
- The tenant base should be diverse and creditworthy.
- The property should not exhibit high vacancy rates or be subject to excessive tenant rollover in the short term.
- Property must conform to applicable zoning.
- Certificates of Occupancy must be obtained.
- Borrower must have all applicable licenses and permits for the intended use of the property.
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