Commercial Real Estate Loans
Below are general guidelines but we urge you to give us a call to run scenario’s past us that may not appear to be a fit.
Minimum Loan Amount– Most lenders have a minimum loan amount. Loan amounts of $750K or more will be eligible for almost all lenders but we do have Lenders that will entertain loans down to $250,000
Acceptable Property Types– We have lenders that will entertain loans on almost any property type. Single purpose properties which have unique features which may limit its use to a single purpose are problematic. While we do have lenders that will entertain loans on restaurants, the number of Lenders that will consider them are limited.
Occupancy– Many lenders have restrictions regarding the occupancy of commercial properties. Some will not entertain owner-occupied purchases where the applicant’s business will be the only occupant in the building. Others won’t accept loans on multi-tenant properties where the applicant is occupying less than 50% of the space. We have lenders that will entertain loans regardless of occupancy but anytime the applicant is a tenant, our options may be reduced. When the applicant is a tenant, the lender will look closely at the applicant’s business.
Condition of Property– Unless the loan request includes renovation costs, lenders will not approve properties in fair or poor condition.
Borrower Experience– Lenders expect the borrower to have property ownership/management experience when purchasing an income property unless they are employing an experienced property management company with their fees factored in.
Loan to Value/Cost– Generally you can expect a maximum LTV/LTC of 75-80% . This is transaction dependent.
Borrower Credit– Transaction dependent but credit is less important than with residential loans but the higher the LTV/LTC, the better the applicant credit needs to be. In general, the applicant’s FICO score needs to be 670 or better. If the LTV/LTC is lower, the Lender might allow a lower FICO. score.
Debt Service Coverage– Lenders look closely at the cash that the borrower/project has available to service the debt. Typically a minimum debt service coverage ratio is 1.25 /1.00. ( 125% of the debt service.)
Cash Reserves– This is an important factor in the approval of commercial loans. On income-producing commercial real estate loans, minimum cash reserves are usually 6 months of P&I payments.
Occupancy Rate– For income producing properties, Lenders look closely at the rent rolls and historical occupancy rates. Unless the loan includes renovation funds, lenders will base the rental income on historical levels. Some also look closely at the credit worthiness of the tenants.
We have developed a process that has been proven over time. Our process has been designed to identify transactions that can close as quickly as possible before all parties expend a great deal of energy. While different lenders may have a slightly different process, you can normally expect the following process related to commercial real estate loans:
Initial Contact/Referral of Transaction– Whether we are contacted by the applicant or through a referral partner, we require an initial call with the prospective applicant to better understand the transaction. When a referral partner is involved, we keep the referral partner abreast of the status but we need to work directly with the applicant.
Completion of Loan Registration Form– This provides basic information on the transaction. We require that the referral partner (If applicable) or the applicant complete this, once we have had the initial call. This Registration Form is available on this page.
Eligibility Determination– One we obtain the Registration, we determine what initial documents are required for eligibility determination and submit Eligibility Determination Request Form with those documents to our lenders for them to determine if they will entertain an application and the general terms they would offer.
Indication of Interest/ Execution of Fee Agreement– Once we have received an agreement from one or more Lenders to accept the application and an estimate of terms, we send out a written Indication of Interest along with our Fee Agreement for acceptance and execution by the applicant. Please note the fees earned by WNC are paid at closing.
Document Checklist– Once we have received the executed Fee Agreement, we will send the applicant a Documentation Checklist and any lender or loan specific forms which will outline what is needed to submit the loan application for approval. In some cases we will submit the application to multiple lenders for approval.
Conditional Approval/Terms Sheet– Most Lenders will issue a Conditional Approval with terms or a Terms Sheet. The applicant will be required to “Accept” the terms and most lenders then require payment of the fee for the Property Appraisal. The cost of this appraisal will vary based on the property.
Clear to Close/Closing of Loan – Once all conditions have been cleared including a satisfactory appraisal, the loan is then scheduled to close. Each lender is different but at some point, each Lender will take charge of the loan and communicate directly with the applicant.