Personal Financial Statements for all principal borrowers, the last 2 years Tax returns – both personal and business and a one page executive summary describing financing need.

Typically, between 45 and 60 days.

The main sources are as follows:

• Life Insurance Companies: Large life insurance companies are usually interested only in loans that exceed $3 million. They lack the ability to service many small loans and therefore prefer a smaller number of large loans. With billions of dollars in assets some life insurance companies can make large loans-$50-100 million or more in some cases. Life insurance companies rarely offer construction loans; they offer low rates but are conservative and want the long-term yield and safety provided by permanent mortgages on stabilized assets. They typically also require low loan-to-value ratios.
• GSE Lenders: GSE (Government Sponsored Enterprises) or agency lenders focus exclusively on stabilized multi-family properties and properties limited to seniors. Agency Lenders are highly popular since rates are usually lower than other funding sources and second mortgages are allowed. Agency lenders also only tend to fund higher quality, stabilized assets.
• Commercial Banks: Commercial banks are active in making construction loans on all types of property. Such loans are usually offered only if the borrower has a take-out commitment from a permanent lender; upon project completion, the permanent loan will "take" the bank "out of" (repay) the construction loan. Commercial banks typically offer only recourse loans where the borrower is compelled to provide additional collateral guaranteeing any capital deficiencies if the bank is forced to foreclose.
• Conduit Lenders: Conduits are a relatively new breed of lender attempting to address virtually every type and class of asset. By definition, conduits are organized to pool your loan with similar assets and sell them to outside investors. As a result, underwriting standards are set by these buyers and can often be quite limiting to borrowers with unique properties or borrowers that require more freedom managing their cash flows. The loan application process can also be intimidating for borrowers new to conduit lending since every loan needs to documented for an easy sale. However, the upside to these loans can be considerable. Because hedging in the secondary market mitigates risk, conduits can often offer rates that are more competitive than traditional lenders. Conduit loans are also typically non-recourse.

A residential mortgage is limited to as the name implies, “residential properties” no greater than four units per building, whereas, a commercial mortgage is utilized to secure financing for a wide-array of property types. In addition, the residential loan process is essentially standardized through the use of guidelines established by Freddie Mac and Fannie Mae, while the commercial loan process can vary greatly from lender-to-lender.

Yes, it is one of the key factors as to whether a commercial loan is approved. Debt service coverage is the ratio of cash available (after all property expenses) for loan payments to the loan payment. Expressed as: Net Operating Income (NOI) / Principal and Interest on proposed mortgage. Most commercial Lenders require a DSCR of 1.20:1 or higher for most property types.

Most commercial loans will only provide financing up to 85% of your purchase price. However, this figure varies based upon the type of property. The maximum percentage is typically reserved for multi-family properties, while properties considered more risky such as restaurants and gas stations may only be eligible for 70-75% maximum financing. However, in both cases, a seller is typically permitted to offer privately-held financing of up to 5-15% above what the financial institution will offer. However, this may increase the pricing of your institutional loan and lower the percentage of financing that the institution is willing to extend to you.

SBA loans typically offer a higher percentage of financing than traditional banks do, and their rates are typically much better. But, there is a catch. The SBA loan process is arduous and lengthy, and loan fees can be higher than traditional lending venues. Even more important, the SBA loan will typically require you to cross-collateralize your personal residence or other properties that you may own now or even in the future, that may have little or no mortgage on them. In this case, it will be very difficult, if even possible, to access equity you may have in these other properties, should you need to, without having to take extensive and frustrating steps to do so. SBA loans also fit a very specific type of borrower. It’s almost like trying to fit everyone into a size 6 dress or size 28 jeans. It’s perfect for some, but there are many that this program just doesn’t fit.

Without getting too technical, we’ll give you the basic formula. 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. Keep in mind, however, that your NOI does not take into account your mortgage payment on the property. 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.

To put it simply, Debt Service Coverage Ratio, otherwise known as DSCR, is the number that indicates how profitable the commercial property is. For example, a DSCR ratio of 1.50 means that for every dollar you spend on the property to keep it running, you are bringing in $1.50 in income. As a standard, the lowest DSCR that most lenders will accept is 1.25.

In order to calculate a Debt Service Coverage Ratio you will need to know what the annual mortgage payment on the property will be. You will take the annual mortgage payment on the property and divide it into your Net Operating Income. The number you end up with should have a decimal in it. For example, if your Net Operating Income is $763,456 and your annual mortgage payment is $435,000, then your DSCR is 1.755 which is typically a good DSCR to most lenders.

“Cap Rate” is short for capitalization rate. Essentially this is the market rate for your type of property in your subject property neighborhood. It is one of the ways appraisers determine the value of your commercial property. This number will vary dramatically by neighborhoods and property types. It is reflective of the supply and demand for your type of property in your particular neighborhood. For example, the cap rate in a college town on an apartment complex will be much lower than a cap rate on an apartment complex in rural Nebraska as the supply and demand will be much higher in the college town. The lower the cap rate, the better the news is for you. Here’s the basics of why. The appraiser will take your Net Operating Income of the property and divide it by the cap rate (as a tenth. IE: a cap rate of 8.5 will need to be divided into your NOI as “.085”). So obviously, the smaller the number is, the more times it will divide into your Net Operating Income. The final number of this calculation is usually a good indicator of the value of your property. For example, if the NOI of your property is $245,000 per year, and the cap rate for your property is 8.5, then the estimated value of your property is $2,882,352. This means that you will need to provide an accurate Operating Statement to your appraiser in order for them to properly calculate the value of your property. Keep in mind, this is only one approach an appraiser takes in determining the value of your property.

If you are applying for a loan that starts at a low adjustable rate, you may need to qualify at a worst-case-scenario rate. For example, if you were to start at a Prime + 2% rate, you would probably have no problem qualifying for the loan if Prime is at 5.25% since the rate would then be 7.25%. However, since you’re applying for an adjustable rate mortgage, the financial institution will want to make sure that you can still easily make your payment should Prime increase because obviously your rate will also increase at that time. So, the underwriter may underwrite the loan qualifying you with a “stress test” or “qualifying rate” of 10.25% in order to assure them that even if Prime were to increase dramatically, you would still be able to make your mortgage payments.

If you were to deal directly with a bank or other type of financial institution, that institution may have a set requirement for a particular credit score or credit profile that you may be required to have. However, with most commercial loans that are brokered, the credit is not one of the first considerations in qualifying you for a commercial loan. The first consideration is the property type. The second is the income of the property. The third is your financial net worth and personal cash flow. And finally, your credit. Your credit score isn’t as important as your credit history. Having tax liens, derogatory public records, and recent late payments report on your credit is a huge detriment in your approval process. However, mortgage-lates on any property you own are equally as serious and could be a reason why you will be turned down for a commercial loan.

In simple terms, a Non-Recourse loan is one in which, if the loan is defaulted on, the lender can only go after the property used as collateral, as opposed to a Recourse loan in which the lender can go after the company or business entity for repayment of that loan, or a Full or Personal Recourse loan in which the lender can go after the owners of the business entity and guarantors. Loans on properties other than multi-family properties typically require Full Recourse, meaning the guarantors and owners of the business will have to ensure timely payment of the loan.