Commercial loan...The bank said nooo!!!!, What?

Question

OK, BP, I need some options. I'm frustrated, but will keep it moving!!! Any insight or suggestions...

Requested commercial loan to refi 5 SFR(50K each)..small 15K private on each, seasoned in Business Name, 60-65LTV,5.75 20yr amortize..All cash flowing with tenants..credit mid 600's(4 properties on personal), wanted funds to reinvest in RE, pay company truck off

Bank..need higher score,reserves, > leverage, < liquidity, global jargon, below break-even ..blah, blah, blah...will consider with guarantor(high score, income)...also counted all residential debt against me except personal residence(3 properties in both spouse and I)

Unlimited Property..established 2005 single member LLC, proven record, over 20 SFR, more than half free and clear, reinvesting with reserves while prices low >20% returns instead of leaving funds in the bank for 2%, full time investor(no high paying w-2)..

#1-reason I requested the loan(restructure debt/reinvest in RE...If I had 50K reserve, I wouldn't need a bank loan

#2 It's a secured loan...

1.What point can the LLC stand on it's own?

2. Should I consider selling some of my notes to raise capital?

3. What did you do when the bank said noooo??

Jean Bolger · Answer

Hi Rolanda! I'm not sure I got all of what you were saying in your initial post, but it sounds like you have 20 properties and are looking to refi 5 of them? If that's correct then I'd think I would agree with the bank that you need a fairly hefty reserve fund. I sure understand your desire to buy while the buying is good, but, having been caught in the low liquidity trap myself in the past I can tell you, it's not pretty. So your comment (#1 If I had 50K reserve, I wouldn't need a bank loan...) caught my eye because 50k is only $2500 per property, and that's not exactly a huge reserve. Did you ask this lender what they WOULD like to see in terms of reserves?

I have been working on re-training my thinking so that instead of seeing my reserve fund as a "lost opportunity" I see it as 1) a cost of doing business, 2) an important element when presenting myself to lenders, and 3) a stress reduction investment.

Justin B. · Answer

*A* bank said no (as in 1 bank). There is 1 out there who will say yes eventually if the deal is decent.

Joel Owens · Answer

Is this the bank you currently hold all your deposits at??

If not you can dangle that carrot to a new bank if they do the loan. Each bank has a different level for risk tolerance to attract new business.

Some keep the loans in house and others sell off. When they are just originating everything has to fit in a nice little box or they can get hit with buy back provisions upon default down the road.

Rolanda Eldridge · Answer

@Albert Bui ...Thanks!! I appreciate your optimism and insight...Maybe you can find a way to do business in AL..lol!!

Rolanda Eldridge · Answer

Thx!! I'm working to get it done!! Perseverance for sure!!!

John D. · Answer

No reason banks #2, 3, 4, etc. that you talk to need to run your credit. You should be able to present to them all of your relevant info including your credit score, and get their agreement not to run your credit until they've reviewed your info and think it's a match.

James Syed · Answer

Welcome to BP.

If Bank A says no, Bank B might say yes to you.

I have 2 lenders that will bend over for me and I also have been turned down by other lenders.

I agree with @Jean Bolger on "reserves" issue. You do need to have reserve for every property in case something goes wrong, like high vacancies, job losses, etc.

Let's not forget Banks (lenders) make money when they lend so if one doesn't want to make money on you, some other lender will think different.

Hope it helps.

James Wise · Answer

I have a bunch of resi 1-4 unit houses in that range as well.

Commercial lenders usually don't want those in their portfolio. Especially if the loan is under 500k.

If you do find what your looking for don't hesitate to share the contact info.

Ben Leybovich · Answer

@Rolanda Eldridge

1. The LLC does stand on its' own. The LLC via property is in fact qualifying for the loan. The bank is simply looking at you as an additional guarantee, and they are telling you that what you are financially speaking is not sufficient to put them at ease. 2 options here - either become stronger, or develop a strong-enough relationship with a bank so that they will "take a chance" on you because they see you much bigger in the future...

2. SFR is not a great asset class for commercial portfolio guys - they often bulk at that. This is one reason I don't like SFR.

Hope this helps.

Rolanda Eldridge · Answer

@Jean Bolger ...Yeah, def a retraining and wake up call

@Justin B. ...exactly what I was thinking..just the initial shock...The only drawback is credit inquiries...

Commercial loan...The bank said nooo!!!!, What?

Commercial loan...The bank said nooo!!!!, What?

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