May 12, 2014
A commercial lender makes loans to commercial real estate investors or to a business, but not to an individual. Loans made to individuals are called consumer loans. Real estate loans made to individuals for one to four residential units are consumer loans called residential loans. Commercial lenders usually make loans on properties with five units or more. In most cases, commercial lenders make loans to properties that are zoned commercial.
Commercial lenders are, foremost, making the loan to an income stream from an investment property or business to service the debt. They will be analyzing a profit and loss statement and coming up with a debt service coverage ratio (ratio of annual net operating income to annual loan payments). A consumer loan looks at the borrower's personal income to service the debt.
Fannie Mae and Freddie Mac – starting at $750,000, they fund loans on apartment buildings. These loans go up to 80% LTV on refinances without cash out. And 75% LTV on refinances with cash out. Loans can be fixed for up to 30 years and have a 30-year amortization. Ask about interest-only payments.
FHA/HUD – starting at about $2,000,000, they fund loans on apartment buildings, senior housing, assisted living facilities, nursing homes, and hospitals. Loans go up to 83.3% LTV, and rates can be fixed for up to 35 years with a 35-year amortization.
Commercial Mortgage Backed Security (CMBS) Lenders – Starting at $2,000,000, they make loans on apartments, shopping centers, office buildings, self-storage facilities, industrial buildings, hotels, and most other commercial properties. These loans go up to 75%. Rates can be fixed for 10 years and most loans have a 30-year amortization. Ask about interest-only payments
Insurance Company Loans – starting at $3,000,000, these commercial lenders, also known as life company lenders, prefer loans at 70% LTV or less on most commercial property types. Rates can be fixed for 10, 15, 20, or 15 years. Amortizations average 25 to 30 years.
National Bank – starting at $2,000,000, these loans go up to 75% LTV and lend on most commercial real estate types.
Regional Bank – starting at $500,000, these lenders lend at up to 75%, rates can be fixed for up to 10 years and amortizations average 25 to 30 years. Most commercial property types except hotels.
Local Community Bank – usually start at $100,000 and go up to 75% LTV. Rates can be fixed for 3, 5, or 7 years on average, with a 25-year amortization.
Private Bridge Lenders – also known as hard money lenders, they make short term loans on business-owned properties or investment properties at an average of 65% LTV. Sometimes up to 70%. These loans are usually interest only with terms from 1 to 3 years. Rates are high, but these commercial lenders close quickly, usually in 2 to 4 weeks.
By Terry Painter, President
Apartment Loan Store and Business Loan Store