Commercial Loans Blog

Commercial Loans: SBA Loans Versus USDA Business and Industry Loans

Posted by George Blackburne on Mon, Jun 18, 2012

The USDA Business and Industry Loan Program is very similar to the SBA 7a Loan Program.  What's the difference?  When should you go with a USDA B&I loan, rather than an SBA 7a loan?

You will recall that the USDA Business and Industry Loan program was developed to help foster employment in rural areas, defined as communities of less than 50,000 people.  Some of the lowest wage rates and the highest unemployment rates in America can be found in rural areas.  The Federal government is therefore trying to encourage companies to build factories in these underdeveloped areas.

Therefore it should not surprise you a company does NOT have to be a small business in order to qualify for a USDA B&I loan. The company could have 10,000 employees and still qualify.

Secondly, the property does not have to 51% owner-occupied in order to to qualify for a USDA loan.  Suppose a company wanted to move into a large, vacant industrial building; but they only intended to occupy 25% of the space.  They would still qualify.

In fact, investors can even qualify for a USDA B&I loan, even if they intend to lease out 100% of the space to others!

Non-profit organizations do not qualify for an SBA loan.  In contrast, the USDA will gurantee commercial loans to non-profit organizations.

While an SBA 7a commercial loan can be used to refinance existing debt, there must be a 20% reduction in the debt service.  In contrast, USDA Business and Industry Loans can also be used to refinance existing debt, but there is no requirement of a 20% reduction in debt service.

Lastly, the USDA will regularly guarantee commercial loans up to $10 million, as opposed to just $5 million for the SBA 7a loan program.  On a case-by-case basis, the USDA will guarantee commercial loans as large as $25 million.

You can submit your USDA Business and Industry loans requests, as well as your SBA commercial loan requests, to scores of hungry lenders in just four minutes using C-Loans.com   And C-Loans is free!  Just please be sure to check the box that says, "I need an SBA loan" or "I need a USDA Business and Industry loan."

If you found this article to be instructive, I strongly encourage you to subscribe to our blog via email.  To get a copy of each new training blog article as it comes out, without having to remember to come back, please fill in your email address in the space provided on the right.

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Topics: SBA loans versus USDA B&I loans

What Kinds of Lenders Are Making Commercial Loans Today?

Posted by George Blackburne on Tue, Jun 12, 2012

If you need a commercial real estate loan, to whom should you submit your deal?  What kinds of lenders are making commercial loans today?  

There is a pecking order in the commercial financing industry.  The lenders with the very best commercial mortgage rates cream the market.  If a commercial loan won't qualify with the very cheapest commercial lender, the commercial mortgage deal then goes to the commercial lender with the next best commercial mortgage rates - and so on.  The pecking order is as follows:  life insurance companies, conduits (CMBS lenders), banks, savings banks and S&L's (known as thrifts), credit unions, mortgage REIT's, and finally hard money lenders.

Most mortals will never qualify for a commercial loan from a life insurance company.  Life companies, as they are called in the language of commercial mortgage finance, will seldom make commercial mortgage loans of less than $5 million.  The property either has to be almost brand new or located in a fllthy-rich commercial area, like in the financial district of Downtown San Francisco.  Life companies usually limit their commercial loans to just 50% to 55% loan-to-value, and they will not allow second mortgages behind their loans.  This means that a commercial property buyer would have to put down a minimum of 45% of the purchase price.  Yikes.  Like I said, few mortals will ever qualify for a commercial loan from a life company.

Assuming you're a mortal like me, let's move on to the class of commercial lenders with the next best commercial mortgage rates - the conduits.  Conduits, also known as CMBS lenders, make large commercial first mortgages exclusively on very standard commercial properties - multifamily, office, retail, and industrial.  Conduits will also occasionally make loans on hospitality properties (hotels).  Like life companies, conduits prefer loans of larger than $5 million, although they will occasionally finance deals as small as $3 million.  Unlike the life companies, the commercial property does not have to be gorgeous or almost brand new.  Bread-and-butter commercial buildings will often qualify.  The typical conduit loan will have a terrific interest rate, just 30 to 50 basis points higher than that of a life company.  Loan-to-value ratios as high as 65% LTV are possible, and conduits will allow mezzanine financing behind their loans, as long as the "mezz piece" is arranged at the same time the permanent loan is arranged.

Commercial banks have the third-best commercial mortgage rates, and banks are making, by far, the largest number of new commercial real estate loans.  In fact, at least 75 out of every 100 new commercial loans originated in the last year were originated by a commercial bank.  Commercial banks will make commercial real estate loans as small as $150,000 to as large as $50 million or more.  The property needs to be functional and leased, but it does NOT have to be beautiful.  The borrower must be clean and strong, and it helps a lot if he has lots of cash in the bank.  Banks will even finance business properties, like motels, restaurants, and bowling alleys, as long as they are successful.

Savings banks and savings and loan associations (thrifts) are making very few commercial real estate loans today - so few that they are not even worth discussing.

I lied to you earlier.  I told you that commercial banks have the third-best commercial mortgage rates.  There is actually a class of commercial real estate lenders that has even better commercial mortgage rates than banks - credit unions.  Credit unions are brand new to the commercial real estate financing arena, and they have rates that are 30 to 40 basis points cheaper than commercial banks.  They will finance business properties, like self storage facilities and motels.  Credit unions have two important limitations - the property must be located close to the credit union and the maximum loan that you're likely to get from a credit union is around $1 million.  Credit unions only do small deals.

There are only two commercial mortgage REIT's actively making commercial real estate loans today, and their rates are no better than those of any other hard money lender.

Hard money lenders are making lots of commercial loans today.  Hard money lenders make one-to-three year bridge loans at high rates and high points.  Sometimes a borrower simply needs the money, perhaps to inject into his struggling company.  In such a case, hard money lenders, like Blackburne & Sons (my own company), can be very helpful.  Hard money commercial lenders will often make loans to borrowers with poor credit and/or struggling businesses, up to around 65% loan-to-value.

Bottom line:  Most commercial loans today are being written by either commercial banks or hard money lenders.  You can submit your commercial loan to 750 different commercial lenders in just four minutes using C-Loans.com   And C-Loans is free!

If you found this article to be instructive, I strongly encourage you to subscribe to our blog via email.  To get a copy of each new training blog article as it comes out, without having to remember to come back, please fill in your email address in the space provided on the right.

Lastly, if you're a buddy or a former student of mine, would you please do me the great kindness of hitting the Like button, the Google+1 button, and the Linked-In Share button above.  Thanks so much.  :-)

 

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Topics: Types of commercial lenders

Commercial Loans on Co-Ops

Posted by George Blackburne on Tue, Jun 5, 2012

Before condominiums became popular, co-ops were often used to buy real estate collectively, especially in New York City and Florida.  A co-op is a corporation that owns a piece of real estate, usually an apartment building or a mobile home park.

The individual owner would not own the airspace (for apartments) or the land (under his mobile home) encompassing his residential unit.  Instead, the individual owner would own a share, or several shares, in the corporation that owns the apartment tower or the mobile home park.  Along with the share(s) comes the exclusive right to lease a particular apartment or mobile home park pad.

Each month the individual owner is responsible for paying his lease payment and his own mortgage payment, if the individual owner used bank financing to buy his shares in the co-op.  In addition, the individual owner must pay his pro rata share of the common operating expenses, such as the doorman, common area utlities, common area repairs, real estate taxes on the entire property, and insurance on the entire building.

There are special issues associated with financing a co-op.  One issue is that many co-op's still own a number of unsold shares (units), which are commonly rented out.  If the co-op still owns too many unsold units or has "foreclosed" on too many shares (units), such properties are difficult to finance.  As a general rule, if the co-op still owns more than 30% of the shares, few banks will finance the project.

So what happens if a balloon payment comes due at a time when the co-op has foreclosed on too many shares (units)?  It's fair to say that there is "big trouble in River City".

There are other issues associated with owning and financing co-ops.  One issue is that the Board of Directions of the corporation has the right to veto an owner's sale of his share (unit).  Madonna once tried to buy a co-op in New York City, but the Board of Directors rejected her application!  The Board of Directors can also forbid or limit a shareholder's ability to rent his unit out.

Another issue with co-ops is that if a number of shareholders are not paying their lease payments and assessments, the remaining shareholders have to come up with the extra money every month to cover the shortfall.  Remember, the corporation owns the building, not the individual occupants.  The mortgage is often huge, and the mortgage loan is in the name of the corporation.  If the bank financing the entire building forecloses, every shareholder is wiped out.  Yikes!

As a result, condominiums have become the preferred method of collective ownership of commercial real estate.  Nevertheless, tens of thousands of apartment buildings and mobile home parks are still owned by co-ops.

Does your co-op need a commercial loan?  if so, please write to me, George Blackburne, at george@blackburne.comIn the subject line, please write the words, "Co-Op Loan".  Thanks!

If you found this article to be instructive, I strongly encourage you to subscribe to our blog via email.  To get a copy of each new training blog article as it comes out, without having to remember to come back, please fill in your email address in the space provided on the right.

Lastly, if you're a buddy or a former student of mine, would you please do me the great kindness of hitting the Like button, the Google+1 button, and the Linked-In Share button above.  Thanks so much.  :-)

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Topics: co-op commercial loans