First and foremost, since Elite Commercial Lending is a broker for commercial loans, we only have to pull your credit one time and we can go look for the best terms and programs to fit your needs. Most direct lenders are limited in the property type and borrower situation on which they can lend. If the loan really needs to be done, the experts at Elite Commercial Lending have the desire and willingness to take the time to understand the loan and figure out how to structure it so that a lender will take the loan. If a borrower works directly with a traditional lender, they cannot expect such service or success.
How do I calculate the Net Operating Income of my property?
Add up all of the income generated from your property such as rent, fees, etc on an ANNUAL basis. Then subtract all of the expenses associated with operating this property such as repairs, utilities, and taxes and what you have left over is your Net Operating Income, also known as "NOI". Your mortgage payment on the property is not taken into account in this formula. That number is used in another calculation process known as Debt Service Coverage Ratio. The more technical formula is: Potential Gross Income + Other Income - Vacancy - Real Estate Taxes - Operating Expenses = Net Operating Income
What properties are not considered by Elite Commercial Lending?
Over the years we've been able to successfully place a wide range of properties. There is no specific property on which we will not lend, however, there are some difficult properties that we've had trouble with, as do other lenders and brokers:
- Raw land requiring high loan-to-values or low down payments
- Adult entertainment facilities have a limited set of lenders and terms
- Churches that do not have at least 5 years of financials.
- Blanket loans are difficult to place, since many times they are on dissimilar properties and properties not contiguous but spread out over a wide area.
- Rural properties where the comparable sales are old and spread out over a wide area. If the property lacks financial statements, the loan is much more difficult to place since there is limited information to determine capitalized value.
Where does Elite Commercial Lending lend?
As a licensed real estate broker and licensed residential mortgage lender, Elite Commercial Lending can do business in most States. Since we are a broker, and not a lender, we are primarily engaged in arranging financing - not in being the actual lender.
Who is Eligible for an SBA Loan?
Most for-profit small businesses are eligible for an SBA guaranteed loan. This includes manufacturers, wholesale, retail and service businesses as well as independent or franchise businesses.
What are SBA Loan Qualifications?
- Retail and service businesses with sales (3-year average) not exceeding $6 million to $20 million, depending on the industry
- Wholesale businesses with employees up to 100 regardless of sales volume
- Manufacturers with employees up to 500 depending on the industry, regardless of sales volume
- What are the credit considerations for SBA loans?
- Business must have adequate historic cash flow to cover the proposed debt
- Business debt to net worth must meet industry averages
- Borrowers must be actively involved in the day-to-day operation of the business
- Satisfactory personal credit histories are required for all principles and guarantors
- No past bankruptcies or felony arrests
What is the debt service coverage ratio DSCR and how is it calculated?
One of the most frequent reasons a commercial loan is denied is because the property does not meet the commercial lender's minimum DSCR requirements. Understanding how a commercial mortgage lender calculates the DSCR can be helpful to know when applying for a commercial real estate loan, conduit loan or an apartment loan.
DSCR = NOI/Total Debt Service
A common misconception made by borrowers when applying for a commercial mortgage loan is that the bank or commercial lender only uses the expenses from the property when calculating the NOI. Commercial Mortgage lenders use the actual expenses plus additional holdbacks, such as, off-site management, vacancy, replacement reserves, repairs and maintenance, etc. Commercial lenders add these numbers to the expenses for several reasons, including, should the borrower default - management fee holdback, should the property lose a tenant(s) -vacancy factor, increase in costs, buffer for unexpected repairs, etc What are the minimum or maximum loan sizes Elite Commercial Lending can obtain?
Loans under $100,000 are virtually impossible to place. Loans from $100,000 - $300,000 have limited lenders and terms Loans from $300,000 and higher have more lenders interested in those transactions. Loans from $10 million and higher have a great number of lenders and brokers chasing them, not all experienced or able to put the transaction together. Elite Commercial Lending has placed loans of every size and property type. Fill out our profile form for a quick and detailed response with our opinion about your transaction!
Why are commercial mortgage rates higher than residential?
Commercial properties are riskier. An individual will do almost anything to save their home, and if they lose it, someone will probably buy it pretty quickly. A business owner or landlord, due to economic pressures or bad management or creditors, may have to shutdown and let the lender take over the property. There is greater cost and risk to a commercial property for a lender, both in loan size and in disposing of the property. Greater risk means a greater return is needed which means a greater interest rate. As a solution, longer amortizations help keep payments lower and a shorter term such as five years permit the lender to reduce rates further since the loan will balloon out and return the capital to the lender sooner.
Why are appraisals so expensive?
Commercial appraisals cost between $1,000 - $5,000. Qualified appraisers usually have an MAI designation, representing years of education and experience. While a residential appraisal is perhaps 2 or 3 pages of analysis, plus pictures and boilerplate, a commercial appraisal runs 60-100 pages and has considerable analysis of sales comparables, reproduction costs, market rents, and economic and geographic research of the general area.
The appraisal process typically involves three approaches to value. These approaches are based on the following three facets of value:
- Cost Approach - The current cost of replacing a property less losses in value from deterioration and functional and economic obsolescence (accrued depreciation).
- Sales Comparison Approach - The value indicated by recent sales of comparable properties in the marketplace.
- Income Capitalization Approach - The market value that the property's net earning power will support based upon a capitalization of net income, stabilization, and residual equity buildup.
Since the marketability of commercial properties is much less liquid than residential, greater care and analysis of the property is made in the event the lender must take over managing the property.
