Commercial loan qualification - Posted by DD

Posted by Irwin on December 05, 1999 at 08:25:38:

I can’t say what ALL lenders do, but most commercial lenders are banks, and they don’t like this arrangement. I says to them that the buyer doesn’t have enough confidence in the project to put his own money in. Or, that the buyer doesn’t have any money to put in. Neither of which is favorable to the borrower. I’m not saying it’s logical, it’s just the way bankers (and, more importantly, bank regulators) think. However, if you will be putting in substantial dollars in rehab, that’s a different story.

Commercial loan qualification - Posted by DD

Posted by DD on December 05, 1999 at 02:18:18:

Does a lender care if a commercial property has a 2nd carried by the seller for a 100% of the balance of the purchase price? The LTV on the 1st would be no more than 55%.

Possible solution: - Posted by BrokerFLA

Posted by BrokerFLA on December 06, 1999 at 17:10:27:

Yes I agree w/ the comments stated below, however, there are ways to make a deal like this happen.

As mentioned before there are many Hard Equity Lenders who base the loan criteria on what I call “I dare ya not to make a payment underwritting.” i.e. There has to be enough equity in the property to make the foreclosure process profitable. (yes profitable)
Mind you, Equity is the difference b/ween their First Mortg. and the Market Value. The Lender could care less about the seller who took back the 100% CLTV Second - he’s history if the First has to foreclose.

Actually, the Lender that will allow this type of 100% Financing goes further and demands a “stand still agreement” from the seller ! Translation : stand still - you as the Second mortgage holder can do nothing if you stop getting payments ! The Second mortgage holder will have no course of action to remedy a default. Oh Boy, try to get a Seller to agree to that one !

Can it be done ? Yes the program is available. The hard part is finding the seller who would be happy if all they ended up with was 55% of the Market value.

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.

Ed Garcia