Small commercial property owners have a new way to obtain a mortgage. What we call "out of the bank" small commercial lending allows for a mix between the traditional bank and the hard money lender. Such programs allow stated income and stated assets, high loan to values, and easier debt servicing coverage ratios (DSCR). These programs are a perfect fit for cash businesses such as restaurants and laundrymats, as well as non-cash businesses such as apartment complexes, retail strips and hotels/motels. They are also good for the borrower that can not get a loan from the bank for one reason or the other.Small balance commercial lending (from $100k to $3Million) has become a hot market over the last several years as Wall Street investors have recognized the significance (and returns) from the pools of performing loans. As the small commercial mortgage industry gains momentum, rates and programs will become more and more competitive and offer programs for what used to be considered "local bank" or "hard money" paper.
Another advantage of working with these small commercial lenders is that, in most cases, you do not need a complete phase I environmental report. Instead the lender takes out an an environmental insurance policy which the borower pays for. These policies generally cost around $2,000 versus $10,000 to $20,000 for a full phase I report. This also allows them to loan to businesses that have difficulty getting standard commercial loans - such as auto repair shops.
These type of loans also close quicker than most commercial loans because they are not going to tie the borrower up with all the red tape paperwork that a bank may ask for. Approvals are usually with 48 hours and closing is usually 30-45 days. The appraisal takes the longest time so if time is of an essence and the business is looking for permanent financing, these small commercial resoruces are the way to go.
