However, with these factors in mind, I am going to endeavor to provide some ranges and general guidelines by product and asset type that hopefully will give you some idea of what you can expect when financing certain properties. Bear in mind the market is very fluid and rates and terms can change daily.
Class A and B properties with experienced, qualified buyers in major metro areas can get fixed rates starting in the high 4’s to mid 5’s. Class C deals will most likely see rates starting in the low to mid 6’s. Smaller loans will generally be in the mid 5’s to mid 6’s. Fixed rates are generally between 5 and 10 years, but some lenders will lock rates for 15 and even 20 years. Smaller Government Agency Loans from 1MM to 5MM are currently being offered for Class A and B, stabilized apartment properties, starting in the mid 4’s, fixed for up to 10-years, on a 25 to 30-year amortization schedule. Loan amounts will vary from 65% up to 85% of appraised value and typically require a debt service coverage ratio of between 1.20 and 1.25.
OWNER OCCUPIED FINANCING
Owner occupied properties are where the borrower is occupying or will occupy at least 51% of the project. There are several financing options for owner occupied properties – Conventional Loans, Agency Loans, or SBA Financing.
Conventional lenders will offer rates starting in the high 4’s for best qualified borrowers, and Loan to Value or Cost, whichever is less, can be as high as 85%. Lenders will base their analysis on the strength of the borrower.
Under the SBA program, two types of loans are offered-504 financing and 7(a).
SBA loans include financing for owner occupied office, industrial, medical and retail properties, as well as hotels, restaurants, bed and breakfast, gas stations/convenience stores, car washes, self-storage and RV parks. Just about any owner occupied scenario will be considered.
The purpose of SBA 7(a) loans is to provide small business owners purchase financing, construction financing, or funds for refinancing into better rates with longer terms for lower monthly payments. Loan amounts are up to $5,000,000 and can include working capital and funds for purchasing equipment or inventory. Rates are typically variable based on a spread over prime, generally starting in the 5.50% to 6.50% range. Some lenders will offer fixed rates for all or a portion of the term, which can be up to 25 years for real estate. Loan amounts can be up to 90% of the value or cost of the property.
Many borrowers do not realize that the bank or SBA lender is making the loan, not the SBA. The SBA is simply guaranteeing a portion of the loan, thus lowering the lender’s risk. In many cases, when a borrower is turned down, he may believe, or is told, the SBA turned down the loan, when in reality, the lender declined to fund the loan.
SBA 504 loans are made available through certified development companies (CDC’s). 504 loans are actually two loans – one with the conventional lender and the balance being the CDC portion. The SBA will typically provide 40 percent of the total project costs with a maximum dollar limit of $5,000,000. A participating lender such as a bank will loan up to 50% of the total project costs, and the borrower/owner will contribute 10 percent of the total project costs. Combined loan amounts max out at 14MM+ and rates start in the mid 4’s to mid 5’s.
Funds are used to finance land acquisitions and improvements, construction, purchase and renovation of an existing building, purchase of equipment and payment of soft costs related to the project.
The advantage of SBA 504 loans is that they offer high loan to value financing, resulting in a lower down payment, below market interest rates and long-term fixed rate financing. Also, The SBA has added a "cash out provision" which will allow business owners to tap the equity in their buildings/properties up to 90% Loan to Value to use for business expenses that they've incurred in the past or those they will incur within 18 months of application. The loan may be assumable if the borrower sells the property.
We use private, well qualified and experienced national preferred SBA lending specialists to fund the majority of SBA loans we originate, assuring a higher success ratio and timely closings.
Alt-A lenders serve those borrowers who are not quite bankable but who typically have clean credit histories and can qualify for better terms than offered by hard money lenders. Minimum FICO score is typically in the 650 range. Generally, rates will be between 7 and 9%, fixed up to 10-years, with resets thereafter. Amortization can be up to 30-years. Loan amounts can be up to $5,000,000 or more. Property types include owner occupied or investment office, light industrial, retail, medical, self-storage, mobile home communities and mixed-use, as well as apartments.
Bridge loans are designed for apartment and commercial properties that need a temporary loan solution until the property is stabilized or renovated. Approval and closing can occur in as little as two to four weeks. Payments are interest only and loan terms can be up to 7-years. Once the property becomes eligible for permanent financing, the bridge loan can be converted into permanent financing with terms up to 20-years. Rates can vary from the high 6% range to the 9% range.
For large farms, ranch and recreational properties. 50 acre minimum with a $250,000 loan base. Purchase and refinance. Cash Out ok. Up to 75% loan-to-value. Wide range of terms and rates from a variable rate to a full 30-year fixed rate. Call for today’s rates.
I get a lot of calls from borrowers shopping rate. Before providing any information about themselves or the property, the question I get asked most is, “What’s my rate?” And my response most often is, “It depends. Tell me about your deal.” The reason is very simple. Each commercial loan depends on a variety of components to find the best lender willing to offer the best terms and rate. Sometimes, rate is secondary to the certainty of finding a lender who will provide financing AND CLOSE!
Commercial lenders will look at a variety of components in order to quote rates and terms such as property type, use, quality of the property, qualifications of the borrower and reason for financing. A lender financing an owner occupied industrial building will require different documentation than a lender financing an apartment complex. Without knowing all the facts, it is simply impossible to quote firm rates and terms-especially when during the processing and underwriting phase, the picture of the property and/or borrower is not as previously described.