Questions about commercial loan

5 Replies

Hi, I have a small mixed-use property under contract and am talking with a bank for financing. I have some questions. Any help is much appreciated!

1. What would be a good interest rate for a small commercial property loan (about $500K) for 6-year term and 25 amortization right now? 6%? 5.5%?

2. After the 6 year term, the new interest rate will be WJS prime +1. Is it reasonable?

3. Bank requests PFS, Tax return and LLC financial statement Every Year. Is it normal for commercial loan? Sounds like a lot to me.

4. I will do an environmental assessment. Does the bank do environmental assessment too? I do not want to pay for two environmental assessments.

Thanks!

This is just from our experience in the Midwest. I'm sure this is vary from state to state:

1. Our properties with commercial loans closed at 5.8% this month, and 5.75% last year, all under $200,000, 5 year terms and 20 year amortization. 

2. Our interest rate is static during the amortization unless there is a "significant change in prime causing material change in the loan and/or hardship to the lender". It's all BS statements because the banks can essentially change the rate to whatever they want between terms, but it would be bad for business to be inconsistent. Prime + 1 is typical.

3. We file that paperwork with the bank each year also. It's a win for us because when they have our updated info and we call asking for updates on the amount they are willing to lend us, they have everything they need and we get quick responses. 

Originally posted by @Chase Gu :

Hi, I have a small mixed-use property under contract and am talking with a bank for financing. I have some questions. Any help is much appreciated!

1. What would be a good interest rate for a small commercial property loan (about $500K) for 6-year term and 25 amortization right now? 6%? 5.5%?

2. After the 6 year term, the new interest rate will be WJS prime +1. Is it reasonable?

3. Bank requests PFS, Tax return and LLC financial statement Every Year. Is it normal for commercial loan? Sounds like a lot to me.

4. I will do an environmental assessment. Does the bank do environmental assessment too? I do not want to pay for two environmental assessments.

Thanks!

The interest rate is reasonable.

Dealing with banks, they are very hands on; particularly with income verification.

The bank should do its own environmental assessment based on the environmental survey you provide.  It usually asks about underground tanks and have hazardous materials been stored there.  If it fails the initial survey, you've got problems and should reconsider the purchase because going further with a Phase 1 or even a Phase 2 is expensive with no guarantee the loan will close.

Stephanie

As has been said 1- 3 above is reasonable. Banks will vary on whether they want to do their own environmental assessment.

Hope it works out for you,

More perceived risk in smaller properties because location and tenant base is not usually that strong. Larger properties with national tenants tend to have strong urban core to suburban locations so the dirt is very valuable today and usually into the future.

So on smaller properties with a more local bank it is a big loan to them and they want to look good to regulators so they get as much info and place as much controls as possible to CTA (cover their #ss) themselves.