Everything in our economy is connected. For instance, retail not only provides people with goods, it also provides people with jobs. It links to commercial real estate, the financial industry, and more. This is true whether the property is in Phoenix, Tampa Bay, Sarasota, or any other location. That being said, there are also significant problems associated with getting into a commercial project. Someone may, for instance, believe that they’ve got a scoop, hearing the news before anyone else, and they want to move in quickly. That would mean getting a commercial real estate loan and, while this is beneficial because it has a positive impact on every element of society, as explained, there are also some key dangers to be aware of. This is what Shaun Benderson specializes in.
Shaun Benderson on the Key Dangers of Commercial Loans
- People forget that a commercial real estate loan does not mean, necessarily, running a business out of that property. Rather, most people that seek out these loans do so for the investment opportunity, wanting to become landlords. Hence, people should avoid lenders that require business plans, as this will usually be irrelevant.
- Commercial property loans should never have any personal property as collateral. While lenders will offer this, borrowers should avoid it at all costs. Business and personal needs to remain separate.
- It is important to look into the sourcing and seasoning limitations and requirements that the lender places on you, if that is applicable to you. Seasoning means that funds have been in a certain account for a period of at least three to six months, sometimes more. Meanwhile, sourcing means that the lender knows what the source of the down payment on a property is. This guarantees the lender to a degree that there is some financial viability.
- A lot of commercial lenders and traditional banks will request borrowers to sign IRS Form 4506. This means that they can obtain past tax returns from the IRS. If a commercial borrower has limited documentation requirements, such as a Stated Income lender, they should not have this requirement.
- A lot of people taking out a business acquisition loan look for a DSCR (Debt Service Coverage Ratio). This should never be higher than 1.2, nor lower than 1.
- Sometimes, commercial real estate loans have a very high minimum amount, ranging from around $500,000 to as much as $1,000,000. This can be a significant problem for those looking to invest in commercial properties, because they often start with much smaller properties that are not value as high as that.
- The loan process for a commercial real estate transaction can be incredibly long. In fact, it can take as much as nine months before the mortgage is closed upon. It is very important, therefore, to find a committed, action-orientated lender. The best lenders can close on a commercial real estate mortgage in as little as 45 days.