Commercial Loans

It seems as if you can't drive the street these days without seeing signs of growth and expansion. On a daily basis the landscape in Lee and Collier Counties changes. With so much construction, expansion and overall growth, it would seem that banks are readily loaning out money and obtaining a loan should be fairly simple. Well, the answer to that is yes and no.

Lets take a step back in time for a moment. Those of you who were in the business world back in the 1980's will recall the good old days, when having a solid relationship with your banker was really all that was necessary to get a loan, and the process was sometimes nothing more than a handshake. And those of you who remember those times will also remember the crash in the late 80's. When that crash occurred, underwriting of loans took on a whole new meaning. The government, under the Resolution Trust Corporation (RTC), took over hundreds of failed savings and loans institutions.

The S&L problem was in large part due to very poor underwriting of commercial loans or sometimes the absence of underwriting altogether. The problem cost the taxpayers $100 billion plus the interest on that money. It was the most severe disaster to hit the banking industry since the great depression of the late 1920's. The finance industry and the government never want to see S&L problems again -- their solution is solid underwriting.

So what does this mean to you as a potential borrower? It means you want to deal with a broker or a bank loan officer who really knows how to underwrite and place loans. By the way, underwriting is another term for analyzing a borrower's request and requirements.

The underwriting will be simple or complex depending on the deal. Either way, the most important thing is to have the file complete before it ever gets to the underwriting stage. In other words, packaging is everything. It is where the value of your brokers or loan officer really comes into play.

There are basically two types of loans available to potential borrowers under the commercial heading:

Commercial real-estate loans -- Solely for the purchase, construction or re-habitation of property

Commercial business loans -- Can be used for anything related to the business, where property or other assets may be pledged. Includes lines of credit and accounts receivable loans

Under each of the two general types, there are more specific categories. Let's take a look at some of each:

** 1st and 2nd bridge loans

** Re-hab, tenet fix ups

** Construction, permanent and mini perms

** Government guarantees and bounds (both taxable and non taxable)

** Guaranteed, non recourse

The loans can be used for purchase, fix-up, expansion of retail properties, office buildings, gas stations, industrial properties, multi-family, hotel/motel, warehouses or any type of real-estate that is used as a business or for a business -- even race tracks and casinos in some states. A good broker or loan officer will help you determine what program best meets your needs and underwrite it according to the particular product and lender requirements.

So now that you know underwriting is important, and you have a pretty good idea of what's out there, you may want to know how to go about qualifying. This is where your broker or bank loan officer comes into the picture, but you will have a continuing role, as well. It's very, very important for a borrower to give as much information as possible in order to enable the broker or loan officer to underwrite the loan. The more you help as a borrower, the better the chances of securing the loan you are after.

Perhaps the most important thing your lender will analyze is the loan to value (LTV) ratio of the assets that are to be financed. Whether it is a hotel, retail space, apartment complex or office-building, the amount of equity in the property will play a crucial roll in securing the loan. Even if it is a commercial business loan, LTV will play a role. For example, a lender may make a loan for 75 percent of your accounts receivable under 90 days.

The underwriting process will also examine the borrower's financial ability to personally support the loan and perhaps guarantee loan payments, if it is a recourse loan where the borrower or someone else must guarantee the loan repayment. Some of the information that may be necessary to determine LTV and the borrower's ability to re-pay is:

** Recent rent roll, if it is a rental property

** 12 to 24 months income/expense operating statement

** One year projection for income, expense, reserves and Net operating income (N.O.I.)

** Photos of property, interior and exterior (a broker can take care of this)

** Description of property and surrounding

** Map of property location

** Property appraisal

** Information regarding borrower's experience

** Financial information on borrower(s) (tax returns, etc.)

All of the information listed above may be required. Your broker can help you compile this information. If you are going directly to a bank, the lender will want to see all of this information in the form of a prepared loan package. If you go to a broker, he or she will prepare the package according to the guidelines of the various lenders to whom it will be presented. Again, I stress the importance of packaging. In these boom times, underwriters have loan requests coming across their desk everyday, and they have plenty to review. If the packaging is complete, it makes it easier for them to stamp it approved.

So to end were we started, yes, there is money readily available, and the process can be simple if presented in the form of a comprehensive package. You can do this on your own, get your account or attorney to do it for you or go to your licensed mortgage professional and let them do the work for you. Whatever you do, explore your options and be prepared.

Jim McCormack is the head of commercial and small business loans at Sunshine Mortgage. He has over 25 years experience in all facets of the lending and commercial real-estate industry.