Obtaining a commercial loan

Friday, March 15, 2002

"The recession that hit the nation really hasn't hit our part of the country. We are still having a lot of activity in commercial lending," said Brad Wilson, commercial relationship manager at The First National Bank.

With commercial ventures having held their own in our market in 2001, we expect growth this year. To facilitate this growth, let's get lending options in order and be ready to go!

The primary information a lender will need to assess your position for a commercial loan is your last three years of tax returns and your financial statement. You will also need detailed information on the property in which you are interested.

Typically we see lenders loaning up to 80 percent of the fair market value on a standard piece of commercial property. There are a couple of lenders who seem to have niche markets where they like to lend money. For example, an owner-occupied physician's office can be financed up to 100 percent with at least three banks in our region.

I have had pleasant experiences in assisting clients obtain commercial financing for the difficult to finance industries -- such as restaurants and night clubs -- with a couple of our privately-owned local banks. The key seems to be the integrity of the individual seeking the loan. A corporate financial statement says a lot, but the individual tax returns and credit scores of the officers of the corporation is tantamount to securing funding at the best interest rates.

Even with a loan-to-value ratio on the property being at less than 80 percent, a lender may still want to secure the loan with your personal assets when a high-risk industry is involved. Be prepared rather than surprised.

Loan terms

Interest rates and length of years vary a great deal depending upon the situation, the lender's available funds, the resale potential of the property, the strengths and weaknesses of the type of business to be housed in the property and the risk evaluation of the individual/company borrowing the money.

Building a relationship with a bank and a loan officer is the biggest favor you can do for your interest rate. Rates generally coincide directly with risks. When you have been doing business with a bank for 20 years and never bounced a check and made your car payment right on time, that should mean something about your desire and ability to repay a loan. Therefore, the first place I always recommend a client turn for financing is their own bank.

That being said, it is important to compare lenders for any product. In talking with Becca Hollis, business banker at the Bank of America, she mentioned the Web site for the FDIC as a source for comparison. I went to the site at www.fdic.gov/bank and found statistics on all the banks in our area.

Commercial lending is an extremely customized process. The majority of commercial loans tend to be adjustable rates for short periods of one to five years. Hollis pointed out a signature product available at a competitive rate that is fixed for 15 years.

Construction lending has become more flexible in that you can actually lock a rate now prior to the completion of the project. And, that makes the uncertainty some have about the future more tolerable.

This is the first in a series of articles dealing with commercial financing. In following issues we will address obtaining loans on commercial investment property and then on businesses.

Cynthia deJournett Austin is the CFO of Team Austins Inc. in Jackson, and a licensed Realtor specializing in commercial and investment property with RE/MAX Achievers in Cape Girardeau. (573-979-SOLD or www.teamaustins.com)

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