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Purchasing commercial property in Los Angeles to either set up a new facility or expand the existing one is often a major commitment that is usually financed by a commercial real estate loan. However, you need first to know whether you’re qualified when seeking a loan for commercial real estate before you get caught up in what rate you’re going to get.
Many different factors determine who will qualify, so it’s essential you do some research on the commercial real estate loan, as well as the type of commercial real estate loan before committing yourself. In this post, we’ll take you through an in-depth look at the entire commercial loan.
Types Of Commercial Real Estate Loans
Different commercial real estate loans exist in Los Angeles, with each of these loans having their own qualifications and specific terms that make them suitable for certain types of commercial buildings. Below, we’ll explain some of these options:
1. SBA 504 Loans
The SBA 504 Loan provides financing to eligible small businesses for the purchase of a commercial real estate. These loans are composed of three different loans: Certified Development Company (CDC) for up to 40% of the loan amount, a conventional bank 50%, and business owner 10% contribution. SBA 504 use of loan proceeds cannot be used for working capital, consolidating debt, inventory, and repaying debt. The U.S. Treasury rates determine the interest rates on SBA 504 and are fixed once you get the loan. To qualify for 504 loans:
• You need a Personal Credit Score of 680 Plus
• Your business time must be 3-years or more
• You must own at least 51% of your occupied property
• Your Debt-Service-Coverage-Ratio must be 1.25 or more
2. SBA 7(a) Loans
An SBA 7(a) loans are a mortgage supported by the U.S. Small Business Administration. You can use the SBA 7(a) loans to purchase a commercial real estate, construct new property, or renovate existing property or to refinance an existing commercial mortgage. The interest rates for the program are based on the WSJ Prime Rate plus a margin of a few percentage points. You can get SBA 7(a) loans from any SBA-approved lender. To qualify for these type of Loans:
• You need a Personal Credit Score of 680 Plus
• Your business time must be 3-years or more
• You must own at least 51% of your occupied property
• Your Debt-Service-Coverage-Ratio must be 1.25 or more
3. Commercial Mortgage Loans
Commercial mortgage loans in Los Angeles are a standard loan issued by a bank or lending institution like clopton capital and not backed by the federal government. Lenders provide loans for a variety of properties. In Los Angeles, a commercial real estate loan will be secured with the property being purchased, and terms vary widely depending on the lender. Interest rates are within a few percentage points of a prime rate. To qualify for these type of Loans:
• You need a Personal Credit Score of 700 Plus
• Your business time must be 1-year or more
• You must own at least 51% of your occupied property
• Your Debt-Service-Coverage-Ratio must be 1.25 or more
4. Commercial Bridge Loans
Commercial bridge loans in Los Angeles are a short-term real estate loan used to purchase a commercial property before refinancing to a long-term mortgage. Many traditional banks and lending institutions issue commercial bridge loan in Los Angeles. Bridge loans are temporary, and usually with a term of 6 months to five years. Qualification for this type of loan will depend on the lender. Bridge loan qualifications are as follows:
• You need a Personal Credit Score of 650 Plus
• Your business time must be 1-year or more
• Your Debt-Service-Coverage-Ratio must be 1.10 or more
5. Hard Money Loan
Commercial hard money loans are similar to commercial bridge loans. Private and institutional lenders issue this type of loan. The borrower must list the commercial property as collateral to qualify for a hard money loan. These types of loans are provided when the time is of the essence and the borrower may have poor credit; they are temporary, not long-term. Commercial hard moneylenders offer comparatively low qualifications for approval.
Eligibility For Commercial Real Estate Loan
The lending institutions have their own internal policies, but most lending institutions will require the borrower to provide the following.
• Documented Property Value: The property offered as collateral must be worth the loan requested. The amount of the loan is divided by the sum of the borrower’s net income and the property value using a loan-to-debt ratio.
• Property Cash Flow: The lending institute weighs the cash flow of the borrower to the debt it carries, and usually prefers a steady net income that is at least 20% greater than the debt. The borrower must prove his/her income, and in detailed statements.
• Guarantor Income and Assets: The guarantor is the person that guarantees to pay the loan should the business default. The lender may require that the guarantor should be involved before the borrower can receive the loan.
How To Get Your First Commercial Real Estate Loan
Each lending institution uses a slightly different process. To get a commercial real estate loan in Los Angeles:
• You must provide a packet of information to the lending institution
• The institution will analyze and reviews the information provided
• They will engage an appraiser to value the project
• The lender will send your project to the committee for review
• The loan goes through the credit approval process
What’s Next Once You Get The Loan?
After securing the loan, many lending institutions monitor the project health as well as associated expenses. The lender or professional inspectors either conduct these inspections. The lender may track some of the items listed below:
• Costs to date
• Deadline expectations
• Monthly progress reports
• Any significant change orders
• Costs to complete the project
• Leasing status of available units
In conclusion
Getting a commercial real estate loan can be challenging but early engagement with your lender improves the process. These loan rates are often lower because it uses owner-occupied commercial properties as collateral in most cases. Understanding your options, and working with the right lender is crucial to making sure you obtain the best possible commercial real estate loan.
