Shaun Benderson has been involved in commercial real estate loans for a very long time. He has worked on lengthy projects in Phoenix, assisted people who had a scoop on a property in Tampa Bay, stayed on top of real estate news in Sarasota, and more. He knows what is involved in a commercial or retail real estate project, and he knows what can go wrong as well. This is why he has developed a list of issues that those wanting to take out a commercial real estate loan are likely to come across.
Shaun Benderson’s List of Commercial Real Estate Loan Problems
- There is a big difference between a tax return and a stated income. It is common for banks to want to see three to five years of tax returns before they agree to provide someone with a commercial real estate loan. If you do not have that amount of returns yet, then you may want to use a State Income lender instead, who doesn’t verify personal assets or income. A lot of borrowers find it impossible to qualify for commercial mortgages because their tax returns show a low net income and high business expenses. Additionally, it is common for lenders to continue to verify tax returns and income even after they have agreed to close on the loan. This is something a Stated Income lender will not do.
- If you want to purchase a special purpose property, it is likely that you will find it very difficult to get a mortgage. This is because any property that is not a retail, office, or apartment building is classed as “special” and in the world of finances, “special” always means “risky”. If you were hoping to get a loan for an auto service business, a bar, or a restaurant, for instance, you will find it much more difficult to get a lender interesting. If properties are even more specialized, such as an assisted living facility, nursing home, funeral home, or church, you will find it all but impossible.
- There may be some balloon/recall features associated with your loan. This means that it is common for commercial real estate loans to only be provided for a period of three to seven years, leaving you with a huge balloon payment at the end of it. That said, it is possible for find commercial property loans ranging from 15 to 40 years without a balloon or recall feature, but they are significantly harder to find.
- Usually, there is no reason for a commercial borrower to have to pay an up front commitment fee. However, there are certain other fees that you do have to be prepared to pay, including retainer fees and processing fees. These are perfectly acceptable and they are, in fact, a standard business practice if you want to close on a commercial real estate loan. That means you have to have those funds available first.