Small Commercial Loan Criteria/Questions

4 Replies

My partner and I have a 4-plex in a multi-member llc. It is paid off and worth 240K. We would like to pull out the cash to use for more purchases and had some questions around this. I am experienced with conventional financing but not at all on commercial and I noticed most commercial lenders I have searched online have high minimums and/or 5+ minimum unit requirements.

Has anyone done a commercial loan on a property this size? Was it easy to find a lender doing so and if so any suggestions?

Is it common to have seasoning requirements on this type of loan?

How do you present yourself to the commercial lender on paper? Do you create a high level document with your work and investing background including current portfolio numbers? (we also have some SFH's)

A loan on a 240k building is not too small for most banks. If it cash flows well you should not have any issues finding a 70% LTV. Higher LTV's are possible depending on the bank and how much you want to leverage. The lower the leverage the easier it should be to finance.

Locally owned banks are probably your best bet. Larger National Banks will tend to be more interested in larger dollar loans but even at 150k they should be interested.

Seasoning requirements will vary from bank to bank and depend on your experience level with real estate. 6 months is typical.

As for preparing documents, I would start by creating a portfolio list with rent rolls for each property, copies of current leases, and 3 years tax returns. I would bring these to the initial bank meeting along with a specific outline of what you want from the bank.

The first thing the banks wants to see is credit history for you and your partner, then they will look at the performance of the properties owned. They will be looking for a DSCR on the properties after financing to be a bare minimum of 1.20-1.30

Once they get past this point if everything looks good on paper they will make you a proposal and require an appraisal.

Don't be surprised if some banks aren't interested. It may have more to do with their current position in the real estate market then you. Some banks don't want more real estate on their books, and some banks are aggressively trying to add real estate.

Good luck.

Thanks @Chris Adams for the detailed response. I'll just need to package that information up so it's presentable. The DSCR's on the properties are in the 1.8+ range and credit in the 790 range. We also keep a conservative amount of reserve for them.

Does it help to have a high level overall business plan to present or is that overkill and should just focus on the specific property? My partner is in construction so he handles rehabs, contractors, etc.

I can't see a business plan ever being a bad thing, but in general you don't have to go overboard. Although it might benefit your partnership to have a business plan to help define your goals and direction for the partners.