5 Things You Need To Know About Commercial Loans

Looking for the right information on Commerical Loans can be a daunting . The net has made this task extremely less difficult and definitely quicker than the way we used to do it. That being said, when you are looking for data on the internet, the amount of advice available can be staggering. To make the process of finding data much simpler, we've reduced it to the 5 most important bullet points you need to know regarding Commercial Loans.

1. Financial Analysis: A key aspect in making an underwriting decision is the debt service coverage ratio (DCR). The DSCR is equal to the monthly debt compared to the net monthly income of the investment property.
2. Loan to Value: Unlike residential lending, most commercial lenders will require a minimum of 20% of the purchase price to be paid by the buyer. The remaining 80% can be in the form of a mortgage provided by either a bank, lending institution, or mortgage company.
3. Credit Worthiness: For businesses at least three years old, personal credit of principals will be evaluated by the underwriter. This may or may not hold true for longer durations of time for tightly held companies. For corporations, business performance and credit ratings will be evaluated with a proven track record.
4. Property Analysis: Fair Market Value and Fair Market Rent will be analyzed. Special use property may require additional underwriting. Age, appearance, local market, location, and accessibility are some other factors considered. Commercial loans are for the most part a little harder to get than a residential loan.
5. Gross Rent Multiplier (GRM) is useful in providing a rough estimate of value. The capitalization rate (Cap Rate) is a more affective method of calculating the value of an income property, since average vacancy and operating expenses are included in the cap rate calculation.