GENERAL GUIDE: For Commercial Loan Borrowers

GUIDE: For Commercial Loan Borrowers

GUIDE: For Commercial Loan Borrowers

What do lenders consider when reviewing a commercial loan request today?

Borrower/Applicant

  • 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.

Neighborhood

  • 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.

Operating History

  • 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.

Legal Compliance

  • 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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romeoGENERAL GUIDE: For Commercial Loan Borrowers

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