Commercial Real Estate

Shopping for Commercial Loans

Expertise: Landlording & Rental Properties, Real Estate Investing Basics, Flipping Houses, Business Management, Personal Development, Mortgages & Creative Financing, Real Estate News & Commentary
210 Articles Written
Commercial Loan

I buy smaller multi-family properties.  My strategy is: buy them, fix them up, rent them out and hold them.  This is a great strategy for building cash flow and wealth.  A great way to get the funds to pursue this strategy is to secure commercial loans.

Want more articles like this?

Create an account today to get BiggerPocket's best blog articles delivered to your inbox

Sign up for free

I discussed commercial loans in a previous post.  Here just let me reiterate that commercial loans are loans that are much more investor friendly.  They can be used no matter how many properties you have, if you have an LLC or even several LLC’s.

Where does the smaller real estate investor find these types of loans?

Do not bother with the big banks, like Bank of America, SunTrust or Wells Fargo.  They most likely are not going to talk to you unless your project entails several millions of dollars.  Rather, you want to talk with the smaller, local community banks or credit unions.

Before the crash in 2007, almost anyone could get a commercial loan. Today, many banks are not eager to loan on real estate, but some are. You will just have to knock on several doors to find a bank willing to work with you.

How to Get a Commercial Loan

Here are some tips before you go knocking.

Get an Introduction – Try to get an introduction rather than cold calling if possible.  If a good customer of the bank can provide a recommendation for you, it can really go a long way.  This is one reason why networking with other investors is so important.

If You Cannot Get an Introduction– You are going to have to make a cold call.  Ask for an appointment with the vice president in charge of commercial lending.  Banks are always looking for new clients to lend to.  It is how they make their money.  So they will most likely be happy to talk with you.

Get Some Experience First – If you have just started out in the business, you may need to gain some experience first.  Use up your more conventional financing opportunities first to gain this experience.  Bankers often want to see that you have some past success and experience.  They generally like two years or more, especially if you are trying to do business in an LLC.

Put Together An Info Packet – Put together an info packet about you and your investment goals to present to the bank.  This packet should contain at a minimum 2 years of tax returns (personal and corporate), a personal financial statement, a description of your properties and a brief overview of you and your business.  Remember you are selling yourself to the bank.  Present a good case as to why they should lend you money.

Don’t overlook the importance of this packet.  Part of your job is to sell yourself during your meeting, but another part is to present a clear, concise, well thought out, proof read picture of who you are for the banker to look at and examine later.  It had better show that you are making money and how you plan to continue to do so in the future.

So there you have it.  I bet you did not expect to have to wear a “sales hat” as a real estate investor.  But, knocking on doors, selling you and your business and convincing people that you are a good investment is part of the job too.

If They Say No…

Expect a lot of banks to say no these days, and that is fine.  It is just the times we live in.  If a bank does say no, ask why.  You can gain some valuable insight into your business and your business numbers this way.

Always be kind and thankful, because banks change their landing criteria all the time.  What is a no today may be a yes tomorrow.  Never burn a bridge and always leave the door open to talk again in the future.

Most of all you must be persistent.  Keep trying! Yes, many are going to say no to you.  Just, keep knocking on those doors.  There is one out there that will likely work with you.

Finally, let me ask other investors out there how they see the commercial loan market.  It seems to me things may be loosening up ever so slightly.  How are things in your market?  Let us know in the comments.

Photo: Steve Snodgrass

Kevin Perk is co-founder of Kevron Properties, LLC with his wife Terron and has been involved in real estate investing for 10 years. Kevin invests in ...
Read more
    Kyle Hipp
    Replied over 6 years ago
    I have exhausted my 4 easy fannie/freddie backed loans. I know I could get a portfolio loan but they have many more hoops to jump through. I decided to look into a commercial loan early this spring as I had a land contract purchase coming due to refinance and had just switched day jobs. I actually met a fellow real estate investor being the 401k advisor at my new company. We talk for about an hour of real estate and 5 minutes on the 401k stuff. He had recommended his commercial lender at US Bank and I set up an appointment. I did have a timeline and had a great meeting with her and provided all required documents immediately. I didn’t get word back from the lender all of the sudden and then a couple days later recieved an email I was not getting the loan. I recieved a letter a couple weeks later with an explaination of not enough info provided and didn’t meet certain requirements which were incorrect on both counts. When I recieved the email that it was not going to happen I asked for clarification and proposed a simpler path that was certain to qualify but never recieved a response with 2 attempts over several days. When I recieved the original email that it was not in the cards, I was less than 2 weeks away from my deadline. stopped in at the credit union I do my banking with and met with the VP of commercial lending after when I requested such a meeting when stopping in the branch. We sat in the conference room and I explained my situation. We had a framework that day. I provided my paperwork immediately again. I drew up the deeds as I was transfering the property from my name to an LLC name at the same time. With the logistics of it all, we were gonna mis the deadline a little bit and I was able to work a small extension with the seller which he had absolutely no problem with. The loan closed within 3 weeks. It was higher interest rate at 5% but I had no problems with that. Also on a 15 ammortization and 5 year balloon also no problems. I now have a great relationship that allows me to purchase a property, fix it up and rent it out and rent it for a month and get cash out financing. I honestly do not know why more investors do not take advantage of it. Great post. Sorry for the long comment 😉
    George Paiva
    Replied over 6 years ago
    Kyle, great insight. Almost the same happened to me in my multifamily deal last year. Local Bank beat out and went out of their way to close on time. My commercial loan is 2.50 over prime which is 5.75% for 20yr Amor and 10yr Balloon. All the other banks couldn’t believe the offer I was given, it does pay to keep up a good relationship with a local bank.
    Kevin Perk
    Replied over 6 years ago
    Kyle, Thanks for the long comment and thanks for sharing your success story. It is possible in today’s tight lending market. Like you pointed out, start where you have a banking relationship. Great job! Kevin
    Kevin Perk
    Replied over 6 years ago
    Kyle, Thanks for the long comment and thanks for sharing your success story. It is possible in today’s tight lending market. Like you pointed out, start where you have a banking relationship. Great job! Kevin Reply Report comment
    Kevin Yeats
    Replied over 6 years ago
    I have to add — KNOW YOUR CREDIT SCORE. There are plenty of services that monitor your credit report and provide 24/7 access to your credit score. Knowing your score with alert the borrower to any problems that the loan underwriter will find.
    Kevin Perk
    Replied over 6 years ago
    Kevin, Great point. Thanks for reading and writing, Kevin
    Replied over 6 years ago
    Many residential buy and hold investors should really consider the possibilities of getting commercial loans more. If they place needs a lot of work, you have maxed out your 4-10 residential loans or want to own it in an entity without any rigmarole it is an option that should be looked into. I do think that people that haven’t dealt with these before probably need a little time (or a fair amount of up front research) to accept the sticker shock of the higher rates, shorter amortization and mostly the balloon payments.
    Kevin Perk
    Replied over 6 years ago
    Shaun, I could not agree more. Commercial loans do give us investors a lot more flexibility. And, as long as you calculate your cash flow based upon the higher interest rates, etc., you should be good to go. Thanks for reading and commenting, Kevin
    Replied over 6 years ago
    Another great article Kevin! I’m just now starting to do residential commercial loans with a local credit union and pretty much went through a similar process of getting things going. I’m getting 5 year balloons with 25 year amortization. One thing that concerns me is how things will play out 5 years from now. There is the likelihood the bank will renew the loan once the term is up, but its not guaranteed!. My plan “as of now” is to keep acquiring properties with this financing, and in a few years out when these loans start reaching the balloon date, I can start snowballing the cashflow from all my properties towards them. What are your thoughts on this aspect of the commercial loans? What is your strategy/How do you plan for it? Thanks in advance Kevin!
    Kevin Perk
    Replied over 6 years ago
    Mehran, Congrats on getting financing. You must be doing something right. As long as you keep up good cash flow numbers most likely the bank will refi. Why would they want to loose a performing loan and a good customer? But you are correct in that you never know. I like to keep looking for new banking relationships, thus keeping my banking options open. Also, start looking for private lenders. Lots of people have money and are looking for a good place to park it. You just might have a good place to park. Thanks for reading and commenting, Kevin
    Mehran Kamari
    Replied about 6 years ago
    Thanks so much for the advice Kevin. I appreciate it!
    Kevin Perk
    Replied about 6 years ago
    Mehran, Thank you for the kind words! Kevin
    Sandeep Sukhija
    Replied about 6 years ago
    Great info guys! Kevin & Mehran – are you guys doing only multifamily or are also doing SFR with commercial loans? I am a buy and hold SFR investor who has run out of the conventional path (due to 10 loans). Very soon I will be heading down the commercial loan path (I am now building a pool of SFRs in Houston area)
    Kevin Perk
    Replied about 6 years ago
    Sandeep, If you structure your relationship with a local lender right, you can buy anything you like. If a single family as a rental makes sense…no problem. If a 24 unit building makes sense…no problem. Just talk to the banker and tell them what you want to do. Tell then you want to buy and hold properties. These properties could be single family dwellings, they could be triplexes or 24 unit apartment buildings. It just depends on what deals the market and your marketing brings you. Hope that answers your question. Good luck and thanks for reading, Kevin
    Rowan Gratz Rental Property Investor from Arcata, CA
    Replied 11 months ago
    Super helpful to think in this mindset. Thanks Kevin for your time and information!