Re: Commercial loan qualification - Posted by ED Garcia
Posted by ED Garcia on December 05, 1999 at 10:31:24:
This is a question that would be answered with a lot of (Ifs).
Even though you have structured this deal at 55% LTV, banks are not equity lenders.
If you are in California, I could make this loan for you. If not, then this would be a deal
for a hard money lender because it would be based on equity only. You have nothing in the
deal, so the equity that the loan would be based on, would not even be yours.
(1) Each Bank or lending institution has the ability to make exceptions depending on how
they feel about the borrower. In another words banks are normally not collateral lenders.
They make loans to PEOPLE, and then collateralize it with something. They make their loans
based on credit worthiness, and the financial strength of the borrower.
(2) How strong the deal is. Remember a commercial loan is different than a home loan in the eyes
of the bank. When you make a commercial loan from a bank you are borrowing against an
income producing property. They take in consideration the income stream of the property,
with you the borrower being a secondary source of repayment.
Example: If you had a free standing Walmart or K-Mart. On a 20 year NNN lease.
Here you have a property that has what we call, a CREDIT TENANT. This tenant is stronger
than the borrower borrowing the money. The bank would defiantly take that into consideration.
(3) Many of your lenders on larger commercial loans are insurance companies, and pension funds.
And yes I have seen lenders from time to time offer 100% financing on properties as I described
above. This is the exception to the rule, not the rule.
For some one starting out in commercial. My suggestion is to work with a small bank, and build a
relationship with that bank. This will give you the ability to learn about commercial property and
how your local bank views it. I will tell you that most banks have rules that can be bent, modified,
or compensated for. It takes time and experience to learn when this can happen.