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Business owners currently considering refinancing a commercial mortgage, will find that most of the rules have changed. As the economy and so-called credit crisis continues, the small balance lending (loans between $ 300,000 – $ 5 million) are scrambling to reset their guidelines while not denying any loan that comes across their desks.
"Back to basics" seems to be the rule of the day. As little as a month ago, commercial lenders were still "start" non-traditional programs such as stated income loans, interest only loans and second lien position. Although not completely removed, those programs have been severely altered. Business owners will need to have their books, value, and credit online to receive financing options well.
DCR
The coverage ratio of debt is a tool of use of sources of capital for evaluate whether a company can afford the mortgage payments of proposed loan. Typically lenders want to see a report of 1:1.20. Meaning the company would have $ 1.20 in net income over $ 1 proposed mortgage debt. So if the company had a 1:1.2 they would still $ .20 even remains after all debts and expenses have been paid.
This ratio is critical in difficult times. It has impact on the value of commercial property and as mentioned above, the owner of a company can benefit of. Most sources of capital Ratchet are now the ratio to 1:1.3 and with a few special purpose properties to 1.4 's (like hotels). As a reference point this ratio was only 1.1 with many aggressive lenders there are just a few months.
In addition, underwriting standards are less obvious, as increasing vacancy and management fees have a direct impact on net income. Many lenders raise the underwriting guidelines of 3% 7%. In places like Phoenix for example, some subscribers use vacation market against a standard of 5%, which can seriously impact a transaction if the market are vacant, for example 12%. Keep in mind that this post be made on the transaction, even if the property in question is 100% occupied at the time of refinancing.
This tightening has its greatest impact on businesses that are highly leveraged and / or very tight on the cash flows. Borrowers face a ballooning loan that a borderline, will be hard to come up with options.
LTV
Loan values, as in the difference between what a property is worth compared to what is due ratio is another key to reducing risks to banks. The upper normal for the owner occupied properties typical, such as offices, industrial or retail, is 75% / 80% on refinance. He is being dropped almost across the board to a maximum of 70%.
Properties for special such as, restaurants, cars, hotels, nurseries, etc. take the weight of it, as many lenders will not lend beyond 60% its loan to value. Many lenders have simply stopped lending on these properties together.
CREDIT
Credit Ratings become a personal way too easy for banks to quickly and effectively say NO to an agreement. 680 is now the new 640. This is not to say that no decent lenders will look at deals below 680, but the file must have resistance to this issue to increase the score lowest credit.
GLOBAL
The ratio of world income effectively calculates the total income (both professional and Personal) c. all costs (again, both professional and personal) that the contractor has. 50% to 60% was the norm for years, lenders have become increasingly demanding 40%.
Beyond the underwriting rules that are more stringent, there seems to be general confusion among banks as to what is the criteria, and / or waiting "to see what happens" mentality. This can be particularly frustrating for business owners because most prefer a quick yes or no, rather than being drawn because of the confusion.
About the Author:
Jeff Rauth is President of Commercial Finance Advisors, Inc out of Birmingham, Michigan. He specializes in Commercial Real Estate Loans between $400,000 – $5,000,000. Offers unique loan programs such as Commercial Second Mortgages, Commercial 30 Year Fixed and 90% non SBA financing, Commercial Equity Lines. 248 885-8797 or at Commercial Real Estate Loans or SBA 7a Loan Commercial loan brokers
Article Source: ArticlesBase.com – Owner Occupied Commercial Mortgage Refinance
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