Commercial Mortgage Lenders

Tips and strategies to land the best deals on commercial real estate loans

If you want to buy or expand an office complex, warehouse or retail building, you need a commercial mortgage. Commercial loan rates can vary considerably based on the amount, duration and type of loan as well as on the lender. That's why it's so important to choose the right commercial mortgage lender. Doing so can help you:

1. Secure financing to buy or expand your business property.
2. Secure a long-term location without rental rate hikes.
3. Profit from the increase in value of your business property.
4. Secure a mortgage loan at a favorable rate and term.
5. Increase your tax deductions.

Prepare your financials

Commercial mortgage lenders want to see hard evidence that you can repay the loan, including financial statements, balance statements, profit-and-loss statements, projected cash flow statements and more. Lenders may want to see a business plan as well as background information on you and your partners.

Know your ratios

Most commercial mortgage lenders require certain percentages for three important ratios: debt service coverage ratio (DSCR), loan to value ratio (LTV) and debt ratio. DSCR is the net operating income divided by the mortgage payments. LTV is the total loan amount divided by the fair market value of the property. Debt ratio is determined by dividing your monthly debt obligations by your monthly income.

Shop for mortgage lenders

The commercial mortgage and commercial lending market is crowded with bankers and commercial mortgage brokers eager to place your loan. Choosing one requires careful consideration of rates, terms, duration, down payment and other conditions. Often the bank that handles your business checking accounts may be willing to offer you a commercial mortgage loan at an attractive rate or with favorable terms in order to get more of your business.

Negotiate a deal and close the loan

Choose two or three lenders that seem to offer the best deals and most closely match what you need. Negotiate with each one, letting them know that you're shopping several other sources. Having options gives you at least some leverage in the negotiation process. Once you have decided on your top pick, proceed to finalizing your commercial mortgage loan. It's wise to use an attorney to review the loan documents and make sure your interests are served and protected. Your attorney can also help walk you through the closing.

• Learn from rejection: If you get rejected for a commercial mortgage loan, find out why and try to remedy the shortcoming. Then apply again, perhaps with a different lender.
• Watch for balloons: Commercial mortgage loans are often for periods of 10 years or less, with the entire remaining amount due at the end of the term as a balloon payment. Be prepared to refinance or pay off the balance.
• Down payments required: Most lenders require at least a 20 percent down payment on a commercial loan.
• Look for hidden costs: Extra loan fees and costs can add up. Lower-interest loans can sometimes cost more because of extra fees and charges.
• Keep your credit clean: If you have other business credit lines, keep them up to date and out of trouble. Any bad credit marks can make mortgage lenders leery.
• Pay attention to restrictions: Mortgage lenders will sometimes impose restrictions on the use of your property as a condition of the loan. Be sure to ask about any restrictions and make sure that you agree with them.

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