COMMERCIAL REAL ESTATE AND BUSINESS LOANS.
Commercial Partners of Texas is one of the top a commercial mortgage lenders that provides a commercial real estate loan, equity and mezzanine debt for acquisition,refinance and construction nationwide. We offer a broad range of conventional and a non-bank commercial real estate loans for small business owners, builders, developers and management firms. We have the most competitive commercial loan programs available to meet the needs of our clients. W have over 15-year relationship with over 120 lending partners -- Commercial Banks, Hedge Funds, Debt Funds, Equity REITs, Institutional Investors, Pension Funds, Mortgage REITs, Life Insurance Companies, Investment Banks, PE Funds, Family Offices and Mezzanine Funds to source capital and provide the best deal for our clients.
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COMMERCIAL PARTNERS OF TEXAS WILL NOT COLLECT A FEE UNLESS YOUR LOAN CLOSES!
Commercial real estate (CRE) is the most safe investments a person or company can invest. These income-producing properties offer tremendous advantages over residential investments not just for building wealth but also generating monthly cash flow. Investing in commercial real estate doesn’t start however with receiving a c rent check but rather the commercial real estate loans that you need to fund respective deals.The type of commercial real estate financing structure used to fund an acquisition will determine the success of that asset and for the entire exit strategy.
A commercial loan is a debt-based funding arrangement between a business or a person and a financial institution such as Commercial Partners of Texas. It is typically used to fund Real Estate, Equipment, working capital and major capital expenditures and/or cover operational costs that the company may otherwise be unable to secure.
Types Of Major Commercial Real Estate Properties:
Special-Purpose or Warehouses
11 Types of Commercial Loans:
Conduit Loans - A very large permanent loan on a standard type of commercial property, which is underwritten to secondary market guidelines with huge prepayment penalty. Such loans enjoy very low interest rates. Conduit loans are later assigned to pools and securitized to become commercial mortgage-backed securities.
Permanent Loans - A permanent loan is a first mortgage on a commercial property.To qualify as a permanent loan, the loan must have some amortization and a term of 5 to 30 years.These rates are slightly higher than Conduit Loans and less in size.
Commercial Construction Loans - A loan with 1-3 years used to build a commercial property. The loan proceeds are releases in portion by the lender in order to make sure they are only used in the construction of the new building. Many of them are also interest only payment loans till the construction is completed and the loan changed to permanent.
Bridge Loans - A bridge loan is a short-term, first or second mortgage loan ( Mezzanine Debt ) on commercial property. The term could be from 6 months to 3 years. The interest rate on bridge loans is typically much higher than on permanent loans which can be from 6% to 12%.
Takeout Loans - A takeout loan is a permanent loan where the proceeds of the loan are used to pay off a construction loan. However, many construction loans these days are with " Construction to permanent loan", means converted to long term fixed rate ( permanent ) loans.
SBA Loans - Loans to users of commercial real estate which are underwritten by private companies, but sponsored by government, SBA, such as banks and specialty finance companies. SBA loan guarantees were created by Congress to encourage the formation and growth of small businesses.
- SBA 7(a) Loans - The SBA 7(a) program is a 25-year, fully-amortized, first mortgage loan program with a floating rate, tied to the Prime Rate.
- SBA 504 Loans - The SBA 504 loan program starts with a conventional, fixed-rate, first mortgage and then adds a 20-year fully-amortized, SBA-
guaranteed, second mortgage behind it. It is the most common way to get a fixed rate SBA loan.
- SBA Construction Loans - Underwritten as conventional construction loans that convert automatically to 25-year SBA loans upon completion.
USDA B&I Loans - Similar to the SBA loan program, where a conventional lender makes the loan but the USDA guarantees most of it. USDA Business and Industry loans were created to help create jobs in rural areas. In some cases, this can go to 100% Loan.
Fix and Flip Loans - A renovation loans that are similar to construction loans. Typically the loan is used to acquire property with enough additional proceeds to renovate the property for a quick sale. Most of these loans are provided by private funds when conventional banks can not lend due to credit or income issueof the borrower. Rates are usually higher here.
The Basics of Commercial Real Estate
Commercial real estate along and residential real estate are the two primary categories of property. Residential includes structures reserved for human living and not for commercial or industrial or cash flow ( income ) use. As its name implies, commercial real estate is used in commerce.
Class A represents the best buildings in terms of aesthetics, age, quality of infrastructure, and location.
Class B buildings are usually older and not as competitive—price-wise—as Class A buildings. Investors often target these buildings for restoration.
Class C buildings are the oldest, usually over 20 years of age, located in less attractive areas, and need for maintenance.
Understanding Commercial Real Estate Loan :
For a traditional commercial mortgage, the minimum down payment varies between 15% and 35% of the overall purchase price, depending on the lender. With SBA 7(a) and CDC/SBA 504 loans, the range is more standardized, falling between 10% and 15% of the purchase price.
Just as with home mortgages, banks and independent lenders are actively involved in making loans on commercial real estate. Also, insurance companies, pension funds, private investors and other sources, including the U.S. Small Business Administration’s 504 Loan program, provide capital for commercial real estate.
With commercial real estate, an investor (often a business entity) purchases the property, leases out space and collects rent from the businesses that operate within the property. The investment is intended to be an income-producing property.
But in general, commercial real estate loans tend to come at a steeper interest rate than a residential mortgage would. Businesses are just riskier to lend to, especially if you're just starting up. Plus, most businesses have less established credit histories than individuals.
If environmental insurance or an environmental assessment is required, you will be responsible for this one-time fee. You will be responsible for any mortgage or deed of trust filing fee imposed by a state or other taxing authority. Wells Fargo Bank will pay title policy costs, but you will be responsible for all other title-related closing or attorney fees and costs.Also, it’s less common with commercial real estate loans for the amortization schedule to match up with the repayment term. For example, you may get the option for five, 10 or 15 years to pay back your debt, but the amortization schedule goes as high as 30 years.
The most popular residential loan is the 30-year fixed-rate mortgage, CRE loans are typically shorter. The terms range from five years (or less) to 15 years, and the amortization period is often longer than the loan term. For example, a lender might provide a CRE loan with a term of seven years and a 30-year amortization. The borrower makes monthly payments during the seven years. The monthly payments are determined as if the loan were being paid off over 30 years followed by one final “balloon” payment composed of the entire remaining balance on the loan.
While residential mortgages are typically made to individual borrowers, commercial real estate loans are often made to business entities (e.g., corporations, developers, limited partnerships, funds and trusts). These entities are often formed for the specific purpose of owning commercial real estate.Lenders consider the nature of the collateral (the property being purchased); the creditworthiness of the entity (or principals/owners), including three to five years of financial statements and income tax returns; and financial ratios such as the loan-to-value ratio and the debt-service coverage ratio when evaluating CRE loans.
That said, the NAR also found that just 60% of commercial real estate lenders used LTV as a criterion for determining how much a business can borrow. The remaining 40% used what’s called the debt service coverage ratio, or DSCR for short.
Commercial Loan Qualification
Commercial banks and brokers are the lenders who are making most of the commercial loans today, and banks require good credit. You will usually need a credit score of at least 680, and a credit score of over 700 is greatly preferred. Now if your credit score is lower than 680, please don't panic, we will find you a bridge loan till you fixe your credit.
Down payments typically range from 10% to 30% of the purchase price. Interest rates also tend to be steeper: around 10% to 20% for most borrowers. Loans backed by the Small Business Administration (SBA) (see below), which are some of the cheapest, ranged from 3.75% to 7.25% as of January 2019 depending on the size and the length of the loan.
To qualify for SBA commercial real estate loan, your small business will usually be required to occupy at least 51% of the building. Otherwise, you should be applying for an investment property loan instead, which are appropriate for rental properties like Retail Shopping Center, Office Building, Rental Warehouses etc.
Types of Commercial Real Estate (CRE) Loans
Here are the most common types of CRE loans:
Permanent Loans or Conventional CMBS or Conduit loans are first mortgages on a commercial property. A permanent loan must have some amortization and a term of at least five years written into the contract.
SBA Loans are written by traditional and non-traditional lenders but are guaranteed by the SBA. There are several different SBA loans that cater to different types of borrowers, the most popular being the 7(a) loan.
Bridge Loans provide a short-term first mortgage loan on a commercial property typically with a six-month to three-year term. Bridge loans are typically obtained when a borrower is waiting for longer-term financing or attempting to refinance an existing obligation.
Understanding a Recourse and Non-Recourse Finance
The lender is agreeing to terms that do not include access to any of the borrowers' assets beyond the agreed upon collateral, even if they default on the loans. Payments will only be made when and if the funded projects generate revenue. A recourse loan is a type of loan that can help a lender recoup its investment if a borrower fails to pay the liability and the value of the underlying asset is not enough to cover it. A recourse loan lets the lender go after other assets of that debtor that were not used as loan collateral.
What is a Working Capital Loan?
A working capital loan is a loan that is taken to finance a company's everyday operations. These loans are not used to buy long-term assets or investments and are, instead, used to provide the working capital that covers a company's short-term operational needs. Those needs can include costs such as payroll, rent and debt payments. In this way, working capital loans are simply corporate debt borrowings that are used by a company to finance its daily operations.The loan can be collateralized by just credit of the business owner, bank statements or any equipment or fixed assets of the business.
How a Working Capital Loan or Merchant Cash Advance Works
Sometimes a company does not have adequate cash on hand or asset liquidity to cover day-to-day operational expenses and, thus, will secure a loan for this purpose. Companies that have high seasonality or cyclical sales usually rely on working capital loans to help with periods of reduced business activity.
What is Commercial Real Estate Bridge Loan :
A bridge loan is short-term financing used until a person or company secures permanent financing or removes an existing obligation. Bridge loans are short term, typically up to one year. These types of loans are generally used in real estate when borrowers have hard time of getting a regular loan from banks due to credit or income issues. Usually we close these loans in 10 days or less for residential or about 25 for commercial properties. We can help you. Call us.
What Is a Construction Loan and Loan-To-Cost Ratio
A construction loan (also known as a “self-build loan") is a short-term loan used to finance the building of a home or another real estate project. The builder or home buyer takes out a construction loan to cover the costs of the project before obtaining long-term funding. Because they are considered relatively risky, construction loans usually have higher interest rates than traditional mortgage loans. Loan to Cost Ratio means, the down payment or skin in the game required by lender for the borrower to put in to the total const of the project. Loan To Value Ration , however, is to the purchase of the stabilized property.
Understanding Construction Loans
Most lenders require a 20% minimum down payment on a construction loan, and some require as much as 25%. Borrowers may face difficulty securing a construction loan, particularly if they have a limited credit history. There may be a shortage of collateral because the home is not yet built posing a challenge in seeking approval from a lender.To gain approval for a construction loan, the borrower will need to give the lender a comprehensive list of construction details (also known as a “blue book”). The borrower will also have to prove that a qualified builder is involved in the project.
Construction loans are usually offered by local credit unions or regional banks or mortgage brokers like us, Commercial Partners of Texas, www.amerimort.com. Local commercial banks like Commercial Partners of Texas tend to be familiar with the housing market in their area and are more comfortable making home construction loans to borrowers in their community.
What is our average commercial loan interest rate 2020 :
Loan Type Average Rates Terms
SBA 504 4.38 - 4.49% Avg $1 million, up to 25 years
SBA 7(a) 5.25% – 9.25% Avg $350,000 up to 25 years
Bank / CMBS / Other From 3.90% Starting at $200,000
Tax implications of Commercial Real Estate :
A capital gain refers to profit that results from a sale of a property, real estate, where the sale price exceeds the purchase price. The gain is the difference between a higher selling price and a lower purchase price. On the other side, a capital loss arises if the proceeds from the sale of a capital asset are less than the purchase price. A capital gains tax (CGT) is a tax on the profit realized on the sale of a non-inventory asset. The most common capital gains are realized from the sale real estate, and property. CGT in USA is ranged between 0 to 20% rates.
Mezzanine,Soft and Hard Preferred Equity Structured Financing.
"Structured finance is a financial instrument available to companies with complex financing needs, which cannot be ordinarily solved with conventional financing. Traditional lenders do not generally offer structured financing. Structured financial products, such as collateralized debt obligations, are non-transferable."
Mezzanine : Mezzanine loans bridges the gap between debt and equity financing of large project debt. It is 2nd position to pure equity but senior to pure debt. However, this means that it also offers some of the highest returns for lenders when compared to other debt types, as it often receives rates between 9% and 20% per year, and sometimes as high as 30%. Borrowers will turn to mezzanine financing in order to fund growth projects or to help with acquisitions with short- to medium-term time frame.
Hard Preferred Equity : The preferred return must be paid even if there is insufficient net cash flow, with no provision for forgiveness or accrual.The right to exercise a control takeover based on the Property’s inability to meet quantifiable performance measures such as occupancy or DSCR. Investor may require a forced sale if the preferred return or the preferred contribution is not paid
Soft Preferred Equity : Return on the equity investment is payable only out of net cash flow OR – Allows forgiveness or accrual of any return not paid because of a lack of net cash flow.
Commercial Equity Loans to Finance Renovation: Commercial equity loans are lines of credit that allow borrowers to unlock the equity in their commercial property without the added expense of traditional loans (which involve multiple fees, including appraisal, title, and environmental). This is good loan for large commercial renovation. Call us.
MBA Home Mortgage Rates as of May 5,2020
30-Year Jumbo 3.81%
30-Year Fixed-Rate 3.45%
15-Year Fixed-Rate 3.03%
5-Year ARM 3.29%
FHA 203 (b) 3.39%
CONTACT US :
6464 Savoy Dr. Suite 785
Houston, TX. 77036
George Tesfa, VP Commercial Lending.
Commercial Partners of Texas is not a licensed United States Securities broker or Dealer or U.S. investment adviser, and declares that the information on this web page and inside this web site is not intended for the buying, selling, or trading or securities, or the offering of counsel or advice with respect to any such activities.