by VentureStreet  Join Our Network
Understanding Commercial Mortgages-The What


What takes commercial deals so much longer than residential loans to close? Rare is the commercial loan that closes in less than 1 month and the rate for those quick-close deals is much higher. Small commercial loans will usually take 2 months and large commercial loans can take as much as 4-6 months or more! Many factors go into this-the appraisal, the broker themselves, the title, and especially the borrower. Let’s start with an appraisal. It will rarely be ordered before the loan is approved and the borrower has committed. This could be weeks into the deal.Once ordered, an appraisal on a commercial property will often take a month and it could be longer if the property is large and has mixed use. That is because the land under the commercial property is just one part of the equation. The properties value ultimately will be determined by its’ cash flow. The appraiser of a commercial property has to get the financials on the property and compare it to similar properties in the area. If my apartment complex is 80% rented and the average complex in the area is 85% rented it will effect my appraisal. How the property has been managed is important. How quickly the appraiser can get that information is important. The appraiser often must contact an owner and get information direct from them. It is not as easy as pulling up an MLS listing. Don’t trust someone who says they can turn a commercial appraisal in less then a week like a residential appraisal. That person does not understand commercial.

You must be careful in choosing a broker or banker to help you. A broker often can drag the file because they do not get the information needed up front. If my apartment complex is running 30% vacant compared to most places running 25% vacant then I need to explain that and have a business plan ready that explains how I am going to change that. Most brokers will send a deal in with a residential loan application filled in, a credit report and two years tax returns and think the loan can get approved. Then when asked for the stuff that is really needed-3 years operating statements, business plan for the property, etc. they balk at getting it. The loan will never get approved just based on 2 years tax returns and a credit report. Why? Because the property is the most important factor. If you get the right documents in a timely fashion, however, then your loan will move through much quicker and actually have a chance of getting approved. Because title on commercial property often involves such things as environmental and zoning issues, it can take 30 days as well. One 10 Million dollar deal got hung up on environmental issues for 3 months! The more complete the information up front-the quicker you can close.

Finally, the other big drag on commercial closing times is the borrower-and I don’t just mean dragging on getting documentation. It is important to remember time frames, if you are under contract, you have 45 days of underwriting and appraisal time from the time you stop shopping, provide everything, and commit to a lender. You CAN’T SHOP A COMMERCIAL LOAN UNTIL THERE ARE JUST 30 DAYS LEFT! If you do, you will end up with a high rate, quick close loan, or asking for an extension and risking losing the entire property if the seller got another offer. It is not worth losing out on a property that will yield you thousands of dollars of profits in a month over 1/8th percent in rate which may mean $50 a month saved! Don’t be penny wise and pound foolish. Understand the time frames and operate appropriately.

Need a commercial loan? Let us match you to a lender in your area.
Find Commercial Lenders
Other articles you may like:
Commercial Funding
We are a Nationwide Real Estate Consulting Firm with several business divisions. KBFG...

How to Borrow Money, Part 2: Debt Financing
This article gives you inside view on debt financing.

How to Borrow Money, Part 1: Equity Financing
This article gives you inside view on equity financing.

How To Evaluate Your Business Financing Needs
How business financing should be evaluated and planned. Business loan prescreening.

Cash Advance For Your Business
If your business is currently accepting credit cards as a form of payment, you can turn...

Be the first to find this article helpful.
Need a commercial loan? Let us match you to a lender in your area.
About the Author

Christopher Hills, 23 Venures LLC
197 Main Street
Milford, MA 01757

Contact Author: request info

If you would like to re-print this article, please contact the author.
Other articles you may like:
Corporate Loan from PrimeFund
Startup Business Loans can help assist your financing requirements

What type of loan does my business need
Explains various types of commercial loans for businesses

Do the 5Cs of Credit Still Matter?
Lending institutions, both private and public, have standard criteria they review when...

How to Get an Asset Based Loan
Guide to the asset based loan financing in competitive financial markets.

How to get a Bridge Loan Financed by a Private Capital Source.
Bridge Financing is often necessary while waiting for for an inflow of cash. There are...

Editorial Disclaimer: The views expressed in articles published on this website are those of the authors alone. They do not represent the views or opinions of this website or its staff. The articles on this site do not constitute a recommendation or endorsement with respect to any views, company, or product. Authors affirm that article submissions are their original content or that they have permission to reproduce.

Home   |   Articles & Videos   |   Affiliates   |   Networking Groups   |   Search by Category   |   Professionals

Terms of Use   |   Privacy   |   About Us   |   Contact Us   |   Member Login

© 2003-2014 - VentureStreet, LLC

Join Our Business Network