Originally published in the San Francisco Business Times. Written by Tom Lynn, Senior Vice President/Senior Group Manager
If your business has experienced growth, you may be considering office expansion or additional warehouse space. Or, have you decided to broaden your investment portfolio with acquisitions for owner-occupied real estate or commercial investment property?
Regardless of your situation, you may have questions concerning the commercial lending process. As interest rates climb, this may be the perfect time to finalize those plans to take advantage of current borrowing rates.
As your trusted advisors, we want to share some of the more common factors that are part of the consideration process when securing a commercial real estate loan:
- Financials. Like any loan, your financial information is crucial, so have this available, including a current balance sheet, income and expense statement (including real estate schedule, if appropriate), and three years’ worth of tax returns.
- Performance. On existing income-producing property, the historical occupancy, tenant analysis, and financial performance of the property is essential. These factors impact the property’s ability to generate sustainable net operating income.
- Equity. Equity is a significant factor in the lending process. Cash equity is preferred over market equity. In fact, ensuring there’s an acceptable level of cash equity in commercial construction loans, federal regulators instituted the High-Volatility Commercial Real Estate (HVCRE) guidelines.
- Market Conditions. Job growth and economic conditions during the timeframe of the loan are also factored into any lender’s consideration.
- Recourse. Most lenders require recourse to the borrowing entity and, often, require a personal or acceptable entity guarantee.
- Experience. Lenders prefer to lend to those experienced in managing or constructing commercial property. If you have questions on navigating the commercial lending terrain, contact your First Bank trusted advisors. Let’s think big.