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4 Key Factors To Qualify For A Commercial Loan – Winston Rowe & Associates
Winston Rowe & Associates is a national commercial real estate finance firm that does not charge upfront or advance fees to process your loan. They have prepared this article help prospective clients and brokers better understand the qualifications
Prospective clients with questions concerning their commercial real estate financing options can contact Winston Rowe & Associates at 248-246-2243 or visit them on line at http://www.winstonrowe.com
Loan to Value (LTV):
The more equity a property contains the easier the loan process will be per say. Also, favorable rates are available for LTV's below 50%. If we have to decide between a property that is in a less favorable area, but the LTV is very low, say 30%, or a nicer home with an LTV of 60%, we will more than likely choose the 1st scenario. Another factor in regard to LTV, is the stabilization of that particular neighborhood. If a neighborhood is on a 10% decline every six months, we are going to take that into consideration. If our loan term is for 12 months, we will take our max LTV of 60% and subtract 20% (Decline), thus making our new max LTV for that neighborhood 40%. We do this because at the end of our 12 month term we expect to be at an LTV of 60% due to the decline in value. On the flip side, if we are make a loan on a property located in a neighborhood that has shown a steady increase in value, we don't have a problem going beyond our 60% LTV max.
Since banks are hardly lending these days, the reliance on private funds has become a very popular financing option. Just a few years back hard money was used to finance the "riskier" borrower, but now we can basically cherry pick. A desirable location is a must for us as we need to know that we can sell the property quickly should the guarantor default on his/her obligation. If the property is in a rural area most investors will not finance the property unless they are very familiar or are native to that rural area. Many guarantors come to us with a request to finance their short sale purchase, asking for 100% financing due to the perceived value of the property -VS- the short sale purchase price. Unfortunately, in most cases there are so many short sales or foreclosures in that neighborhood that the true value of the property is the actual new short sale purchase price, thus we would finance up to 60% of the new purchase price.
Guarantor's Credit and Financial Strength:
Since there are an abundance of borrower's with excellent credit and strong financials, we prefer to have them as guarantors. We want to see that a borrower has the ability to service the debt payments of the loan should the need arise. We also like a guarantor to have some reserves should their income decrease. We don't like to see guarantors that are in a desperate situation financially and rely on private financing solely to get them out of a jam. Granted, if the LTV is low enough we will still approve the loan, but we expect to own that property at some point and know we can fire sell it to cover our debt. In addition, we need to know that the guarantor has the ability to qualify for a conventional loan by the end of the loan term if that is their exit strategy. If the property generates income, that income will be taken into consideration prior to looking at the guarantors' income, when underwriting the file. We always prefer if the property can completely cover the debt payments and those scenarios will be approved first and with more favorable terms.
Most of us prefer not to foreclose on the properties we lend on. In our business we are looking for a consistent rate of return on the money we provide. At the end of the specified term, we get paid back and then we start the process all over again with the same capital. The faster we turn over our capital, the higher our return, so the exit strategy of how the loan will be paid back is very important. A strong, viable exit strategy is a must in today's market. If the property is listed for sale or the borrower can qualify for conventional financing, but needs hard money for some other mitigating factor, this is a definite plus. Far too often we come to the end of the loan term and the guarantor is not able to pay back the loan so a strong exit strategy is very important these days.
Winston Rowe & Associates also has an excellent knowledge based free investor resource for commercial real estate investing, valuation and analysis located at:
Winston Rowe & Associates
31408 Harper Ave
Saint Clair Shores MI 48082
Winston Rowe & Associates has no upfront fee commercial real estate loans in the following states.
Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Vermont, Virginia, Washington, Washington DC, West Virginia, Wisconsin, Wyoming
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Winston Rowe & Associates is a nation wide commercial real estate consulting firm that does not charge upfront fees for commercial loans.