RealFi Commercial Lending
A commercial loan is a special kind of loan product designed especially to meet the needs of varying types of businesses.
As the world slowly recovers from the pandemic, experts forecast an increase in commercial lending. As the recovery
For instance, a business may need a boost in working capital. A business owner might use this kind of funding to address everyday operating costs.
In other instances, they may use the funds to expand their business. However, some business owners and investors apply for loans to purchase commercial real estate.
Keep reading to learn more about how RealFi commercial lending can work for your needs.
A Commercial Lending Definition
You’re most likely familiar with residential loans. Lenders offer these kinds of loans to individual borrowers.
Residential loans amortize over several years. Amortization is the period of time over which the borrower repays the debt in installments. With a residential loan, amortization typically spans 30 years at a fixed rate.
A residential loan typically has a high loan-to-value-ratio. In some cases, a lender may even provide 100% funding. For example, a residential borrower may access up to 100% funding for a VA or USDA loan.
On the other hand, lenders provide commercial loans to business entities and select individuals. This group might include developers, corporations and limited partnerships. It may also include funds and trusts.
Also, the average amortization for a commercial loan is approximately five years or less. However, some commercial loans might amortize over a period of 20 years. In this case, the amortization period is often longer than the term of the loan.
In addition, the loan-to-value ratio (LTV) differs for commercial real estate loans. Typically, the LTV for commercial loans ranges between 65% and 85%.
In some cases, an individual or group might form an entity specifically for the purpose of purchasing commercial real estate. In this case, the entity does not have a financial track record or credit rating. The partners in the entity must then provide their personal financial information to apply for the loan.
Commercial Lending Basics
An individual or entity will often apply for a loan to purchase a commercial property. For example, a business owner might want to set up a new facility, such as a store, office or warehouse.
Alternatively, a business owner may want to expand an existing facility. This kind of transaction is typically a significant commitment for a small business, requiring substantial financial resources. Accordingly, the business owner will apply for a commercial loan.
In some ways, a commercial loan is similar to a residential mortgage. For example, the lender will require that the owner occupies the property. In other words, the borrower must occupy at least 51% of the commercial property for which they are borrowing funds.
However, there are different kinds of commercial real estate loans depending on your needs. Once you better understand the types of lender products, you can narrow down your options—more on that moment.
For small businesses, lenders usually have a few requirements. For example, lenders will require small businesses to have certain financial traits.
Again, lenders will also often review a small business owner’s personal finances for a commercial loan. However, in some cases, lenders will review the characteristics of the commercial property for this kind of transaction.
Qualifying for a Commercial Loan
Usually, a lender will scrutinize a commercial loan more so than they would a residential loan. From a lender’s perspective, small business loans present more risk compared to residential loans.
Resultantly, a lender will want to review a businesses’ books carefully before issuing a commercial loan. They want to make sure that the business has the ability to repay its mortgage debt.
Accordingly, a lender will calculate the debt service ratio based on the information that you provide. Your debt to service ratio is your annual net operating income divided by your annual total debt.
The calculation will show the lender what you spend paying back in commercial mortgage interest rates and principal on your debts. Typically, lenders look for a debt service coverage ratio of 1.25 or more.
Imagine, for example, that you apply for a $100,000 commercial real estate loan. In that case, the lender will most likely require you to have a net operating income of $125,000 or more.
Commercial Loans for Residential Properties
Commercial loans for investors are a bit different. In this instance, a lender will assess the property that you want to finance as collateral.
The lender will then attach a lien to the property. The lien enables the lender to seize the property if you fail to pay your commercial loan.
Again, you must occupy at least 51% of the property to qualify for a commercial real estate loan. If you don’t plan to occupy the property, then you’ll need a different type of loan product. For example, the RealFi Fix and Flip Loan might serve your needs better.
In many cases, a lender will provide commercial real estate financing with a loan-to-ratio value of between 65% to 75%. In other words, your business must put down the remainder of the loan as a down payment.
For instance, you might want to invest in a property that costs $200,000. Meanwhile, the lender may have an LTV requirement of 70%.
In that case, you’ll need to make a down payment of $60,000. The lender would then loan you $140,000 to complete the loan.
Access Needed Funding With RealFi Commercial Lending
There are several kinds of commercial loan products. For example, the RealFi Fix and Flip program is a commercial loan for residential property that’s accessible to experienced property developers.
If you’re an experienced developer, RealFi can provide you with 75% to 95% leverage for acquisition. You can also access 100% of renovation costs with a RealFi Fix and Flip loan. However, the LTV of the property after repairs cannot exceed 70%.
The RealFi Fix and Flip loan is available for non-owner-occupied residential projects and properties. We also offer bridge loans as well as refinancing and loans for ground-up construction.
You can use a RealFi Fix and Flip loan for condominiums as well as single-family and two to four-family homes. You can also use this kind of loan for residential townhouses.
A RealFi Fix and Flip loan might vary between $75,000 and $25 million. This kind of loan is a first position loan.
The loan features an interest-only balloon payment once it matures. However, there’s no prepayment penalty.
The origination fee for a RealFi Fix and Flip loan varies between 2% and 5%. In judicial foreclosure states, the LTV amount after repairs is 65%. In nonjudicial states, however, the LTV rate is 70%.
A RealFi Fix and Flip loan can give you access to the funding you need to close deals quickly. In some cases, you can access funding and as little as a week.
Expand Your Portfolio With a RealFi Commercial Loan
Other borrowers may want to consider a RealFi investment property term loan. This kind of loan is for experienced residential property redevelopers. RealFi can provide you with up to 70% leverage for the appraised value of a property.
The RealFi investment property term loan has an amortization rate of 30 years with a fixed rate. However, you can also choose three-year or five-year interest-only loan terms.
You must have a minimum FICA score of 650 to qualify for a RealFi investment property term loan. Furthermore, the project must have an 80% LTV.
The interest rate for a RealFi investment property term loan can vary between 6% and 8.5%. Meanwhile, the loan origination fees can vary between 2% and 3%. Also, the brokerage fees range between 1% and 2%.
You must have a minimum debt service coverage ratio of 1.1% to qualify for a RealFi investment property term loan. We offer loans for amounts that vary between $150,000 and $2 million.
If you’re an experienced developer, you might find that the RealFi investment property term loan is perfect for your needs.
A Trusted Direct Lender in Commercial Lending
Now you know more about how RealFi commercial lending can work for your needs. However, there are several RealFi loan products available for your next commercial project.
RealFi Funding is a leading alternative investment management firm in the United States. We’re experts in real estate strategy.
Our experienced management team has an innovative approach to delivering commercial funding. We combine state-of-the-art technology with in-house expertise for a transparent, seamless commercial funding process.
We’re a direct lender that originates commercial loans in major markets across the United States. More importantly, we take a relationship-focused approach to commercial lending. Our lending experts can provide the customized solutions and certainty of execution that you need to meet your project requirements.
Contact RealFi Funding today at (800) 601-1917 or connect with us online to learn more about our commercial loan products.
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