California Commercial Loans courtesy of Realinterest, Real Estate Finance

Commercial Loans

When selecting a mortgage company you can take comfort in knowing that we have the experience and resources needed to successfully close your loan in a timely and professional manner. Our commercial loan specialists are experienced in all facets of commercial real estate loans.

We leverage our lender relationships, our commercial appraisers, title agents, closing agents, and other third parties to successfully complete and fund small to large commercial loan mortgage packages.

Our Commercial Real Estate Loans offer a wide variety of commercial loan programs to suit nearly every borrower and property type.

We maintain a commitment to the highest quality of customer satisfaction. Browse our site and feel free to contact us with any questions you may have.

We have a both small and large commercial property loan programs available. Ready for a fast approval?

Commercial Loans Information:

Construction Loans

Ready to build the home of your dreams? 
We can make it easy. Like a lot of people, you’ve probably thought about building your dream home. But you might be concerned about the potential hassles: choosing a quality builder, counting on good weather and bracing yourself for those little surprises that could delay your schedule for days, or even weeks. Or the constant worry about coming in on budget. With all the things that could go wrong, why would anyone ever want to build in the first place?

The best way to get exactly what you want.
There’s nothing like building your home, your way. With every detail in place, just the way you imagined. We’ll make the entire process as easy as possible for you, starting with the mortgage. So you can spend more time thinking about what you want to do.

One loan does it all.
Some lenders require that you have two separate loans for construction and your “permanent” financing. In our opinion, that’s one loan too many. We offer a Single-Close Construction loan that provides all the financing you need, all in one loan. So you apply once-and close once.
Not only is our single-close loan simpler, it also will save you a lot of time, money and paperwork, as your about to see.


How our single-loan works
It’s one loan in two phases: the Construction Phase and the Permanent Phase. While you’re building, you draw money as you need to pay expenses. After your home is built, the Permanent Phase takes over and you begin making regular monthly payments of principal and interest for the life of the loan.

Pay just the interest during construction
To help you manage your budget a little easier, you’ll pay only interest on the money you’ve drawn. That means your payments will be less than they will be if you were paying principal, as well. Plus, you may get a bigger tax deduction for interest-only payments.

A cash reserve-account
When you’re building a home, it’s always a good idea to plan ahead for the unexpected. Our optional contingency cash reserve is a built-in safeguard that will ensure you have enough money to complete the work-or make a few last-minute upgrades or other changes.

Concerned about qualifying? 
It’s easier than you might think. So you might be able to qualify for a larger loan.

Our builder and Project Review makes things even easier
This in-depth process helps ensure everything goes smoothly from day one. So both you and your builder have a good relationship. And the outcome is the dream home you’ve always wanted.


Commercial Documentaion Needed


Documentation for Commercial Loans
Documentation requirements vary depending on property type and if the property is considered an investment property or an owner occupied business. Some lenders will require a personal guarantor. We will know after we receive your application and supporting documentation.

Investment Property
Any property where rents are collected and is the main source of paying the mortgage and other property related expenses.

Required for issuing a lender letter of interest (LOI) or pre-approval which details rate and terms:

  •   Rent Roll / Schedule of Leases
  •   3 years P&L (or appropriate schedule from tax return)
  •   3 years personal tax returns for personal guarantor(s)
  •   Personal financial statement for personal guarantor(s) (or residential loan application)
  •   Purchase contract (if a purchase)
  •   Credit report (tri-merged, we will run)

After initial review we will also need:

  •   Lease agreements
  •   Appraisal
  •   Insurance information
  •   Payoff information

Owner-Occupied Property 
Any property where the source of loan repayment is the owners business (even if held as a separate entity). If the property is partly leased and part owner occupied, you will need to provide everything required in both sections.

Required for issuing a lender letter of interest (LOI) or pre-approval which details rate and terms: equired for issuing a letter of interest (LOI) which details rate and terms:

  •   3 years business P&L and Balance Sheet
  •   3 years business tax returns
  •   3 years personal tax returns for personal guarantor(s)
  •   Personal financial statement for personal guarantor(s) (or residential loan application)
  •   Purchase contract (if a purchase)
  •   Credit report (tri-merged, we will run)

After initial review we will also need:

  •   Appraisal
  •   Insurance information
  •   Payoff information

New Construction or Substantial Rehabilitation:

  •   Brief executive summary explaining use and income source from the property and background of the organization to be the proposed real estate.
  •   Simple recap of Construction Costs.
  •   Plans and Specifications for construction.
  •   Most current rent roll if the loan is for acquisitions with substantial rehabilitation.

Some lenders may also require additional documentation such as resumes for all principals, environmental reports, photos, old appraisals, additional operating history, letters of explanation, aging reports, etc.


Commercial Property Types


Commercial Property Types:

Multi family

  •   Garden Apartments
  •   Hi-Rise Apartments
  •   Mid-Rise Apartments
  •   Low/Mod Income
  •   Student Apartments
  •   Senior Apartments
  •   Underlying Coop

Retail

  •   Regional Enclosed
  •   Strip Center
  •   Outlet Mall
  •   Free Standing
  •   Single Tenant
  •   Regional Unenclosed

Office

  •   Single Tenant
  •   Hi-Rise Tower
  •   Mid-Rise Office
  •   Office Over Retail

Health Care

  •   Congregate Living
  •   Nursing Home
  •   Rehabilitation
  •   Ambulatory Care

Light Manufacturing, Warehouse Storage

  •  Heavy Manufacturing
  •   Light Manufacturing
  •   Warehouse/Distribution
  •   Owner Occupied
  •   Multi-Tenant
  •   Self Storage
  •   Special Purpose

Commercial Loan Underwriting


Commercial Loan Underwriting
Unlike residential loans, commercial loan underwriting can greatly differ case by case. There are, however, certain basic ratios with every commercial loan.

Debt Service Coverage Ratio (DSCR, DSC, DSR, DCR)—this is used to determine whether a property (or business) is able to cover the mortgage and all other expenses tied to a property. Usually lenders require that the property be cash flow positive (more income than expenses) and that there is some buffer room.
Breakeven would be a 1.0 DSCR, or in other words income equals expenses. Most loan programs require a 1.2 – 1.35 DSCR or 20% – 30% more income than expenses on the property. For owner occupied businesses where there is no rental income, the requirement is usually much higher (2.0+ DSCR) because they are gauging the strength of the business as opposed to the property itself. DSCR can vary depending on loan size, interest rate and amortization.


DSCR further explained
The most important ratio to understand when making income property loans is the debt service coverage ratio.  All lenders use them in calculating their amount they are willing to lend.

It is defined as: DSCR = Net Operating Income (NOI) / Total Debt Service

To understand the ratio it is first necessary to understand the numerator and the denominator. Let’s take a look at net operating income (NOI) first.

Net operating income is the income from a rental property left over after paying all of the operating expenses:

Gross Scheduled Rents
Less 5% Vacancy & Collection Loss  
Effective Gross Income:  
Less Operating Expenses
Real Estate Taxes
Insurance
Repairs & Maintenance
Utilities
Management
Reserves for Replacement  
Total Operating Expenses:  
 
Net Operating Income (NOI)  


Please note that lenders always insist on some sort of vacancy factor regardless of the actual vacancy rate in an area to cover collection loss. In addition lenders always insist on using a management factor of 3-6% of effective gross income, even if the property is owner-managed. Their logic is that they would have to pay for management if they took back the property. Finally, NOTE THAT WE HAVE NOT INCLUDED LOAN PAYMENTS AS AN OPERATING EXPENSE.

Next let’s look at the denominator:  Total Debt Service. This includes the principal and interest payments of all loans on the property, not just the first mortgage. NOTE THAT WE HAVE NOT INCLUDED TAXES AND INSURANCE. They were already accounted for above when we arrived at net operating income (NOI).

To calculate the debt service coverage ratio, simply divide the net operating income (NOI) by the mortgage payment(s). For the sake of simplicity, let us assume that there is only one mortgage on the property:

$500,000 First Mortgage
11% Interest, 30 years amortized
Annual Payment (Debt Service) = $57,139

Then:
DSCR = Net Operating Income (NOI) = $65,000
Total Debt to Service = $57,139
DSCR = 1.14 – this simply means that there is .14 – or – 14% more cash left after servicing the debt.

Note – You will notice we show management expense and reserve expenses above.  Even if you don’t pay those expenses, lenders will allocate industry standard percentages against the income for loan purposes.

Obviously the higher the DSCR, the more net operating income is available to service the debt. From a lender’s viewpoint it should be clear that they want as high a DSCR as possible.

Most borrowers want as large a loan as possible.  The larger the loan, the higher the debt service (mortgage payments). If the net operating income stays the same, and the loan size and therefore the debt service increases, then the lower the DSCR will be.

Life insurance companies are very conservative and generally require a 1.25 or 1.35 DSCR. This means that their loan-to-value ratios are low.

Banks and mortgage banks generally only require a 1.20 DSCR, and sometimes will accept a DSCR as low as 1.10.

Loan-to-Value (LTV)
This is used to determine what percentage of the property is being financed. As opposed to residential programs where 100% (or sometimes 125%) financing is available, most commercial programs max out at 60% – 75% depending on property type. SBA programs can often go as high as 90% for qualifying properties (usually owner occupied businesses), but be prepared for red tape. Also keep in mind that many properties will be more limited in loan size by DSCR more so than by LTV limits.

Net Operating Income (NOI)
This is used to determine the profitability of a property. In simple terms, NOI is calculated by subtracting expenses from the income. Usually the income is decreased by a vacancy factor that the lender feels is conservative. Depreciation and mortgage payments are not included as expenses in this calculation. But there are several theoretical expenses that may apply (such as tenant improvements, leasing commissions, etc.) NOI is also used to determine cash available for debt service by dividing NOI by the minimum DSCR. Divide by 12 for a maximum monthly payment.