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Borrowing Money Against My Commercial Property in Florida

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A business owner may be in for a shock when they attempt to borrow money against their commercial property. Commercial Investors have a much lower tolerance for risk than consumer Investors. They don’t have the protection of government loan protections, so they are much pickier about what loans they will accept. They will also charge higher interest rates because they feel commercial loans are higher risk.

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Commercial Investors can and will also look further into a business than an Investor would look at a consumer for a loan. The commercial side will ask for many details about the business behind the commercial property used as collateral for a loan. Therefore, business owners need to be prepared for different questions and criteria when they apply for a commercial loan. They also need to ask questions to themselves and the Investors, including:

Can the borrower make the loan payments, including a balloon payment if required?

Commercial loans often include a balloon payment at the end of a defined term. Therefore, a business owner not only must have an income to meet the loan payments but must be making enough to save up for a balloon payment in perhaps 5-10 years. If there is a business downturn and the cash isn’t available, they must then re-negotiate a new loan with the Investor and incur perhaps even higher interest rates. An additional risk to the borrower is a national economic downturn about the time a balloon is due; the Investor may balk at refinancing the loan in poor economic times.

How much should the borrower ask for in a commercial loan?

Unlike consumer mortgages, commercial Investors will normally not permit second mortgages on a commercial property. Therefore, the borrower must think carefully about how much money they will need to support their business plan during the life of the loan. Commercial banks will also have strict limits on loan-to-value ratios and can require significant down payments for a commercial loan. Smaller Investors may have more flexible ratios but, can charge higher interest rates to compensate. Smaller businesses are often cash-strapped during the early years, so making sure they borrow enough can make the difference between survival and closure. Also keep in mind that a commercial bank is looking for larger loans, therefore a business owner will need to look for different investors if their needs are perhaps $2 million or less.

How long will it take to get my money?

Commercial loans can take several weeks to close. Investors go through several phases of inquiry about the business owner, the commercial property used to secure the loan, and then will want to review up to five years of business tax returns for the owner and anyone else securing the loan. Even after a commitment letter is received, a loan can be nixed by a bank’s governing board if the risk is perceived to be too high. Borrowers need to be prepared to go to less conventional Investing sources if the money is needed more rapidly.

What may restrictions or covenants apply to my loan?

When a business owner obtains a commercial loan, restrictive covenants can be applied which affect the loan in the future. The Investor can require regular reporting of tax returns, cash flow statements, or other evidence that the business is in good health. These covenants or restrictions can even lead to loan default if the Investor feels they are at risk any time in the future. This can result in a demand to immediately pay off the loan. Suddenly the owner will be scrambling to find another Investor willing to take over the loan. It is critical that owners ask specific questions about the covenants and restrictions that will be placed on the loan before committing to it.

Be prepared for lots of documentation for commercial loans!

Commercial Investors want to see all kinds of details about the commercial property being used to secure their loan and the business entities behind it. Be prepared to provide a lot of documentation. Understand what fees, points, or other charges will be required and what money must be paid at closing. Also, business owners need to understand what happens to the loan if they decide to sell or must sell the business. Get everything in writing, consider whether you need a business attorney to review it all, and move deliberately through the process.

If using a commercial Investor seems overwhelming, contact Shop Commercial Mortgage. We offer commercial loans up to 65 percent with no upfront fees. We have a group of private investors looking for opportunities in commercial loans. When you come to Shop Commercial Mortgage, we don’t take weeks and weeks to get your money. We can typically close a loan in 21 days or less. Don’t be the victim of onerous commercial Investing practices; come to Shop Commercial Mortgage and streamline your commercial loan.

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