Commercial Loan Options, Balloon, ARM, Credit Line, Contract


	Loan Options

Real Estate Loans:

Lenders make long term loans secured by commercial and industrial real estate. The loan is usually made up to 75% of the value of the real estate to be financed. Repayment terms range from 5 to 25 years. Some lenders may also make second mortgages on real estate. The amount of the second mortgage is based on the appraised market, LTV and the amount of the first mortgage.

3-15 YR Balloon loans

Balloon loans offer interest rates that are fixed for a period of years. Typically these loans are pegged to a Treasury Index or Libor Index. Terms are for 3, 5,7,10 or 15 years. The amortization schedules are generally for 20, 25 or 30 years.

When a balloon loan matures at the end of the agreed term, the remaining principle balance outstanding is due at that time. The borrower can pay off the loan by either selling the property or refinancing. Investment property is typically owned for a previously defined period of time. Analyze your investment strategy before securing a balloon. Having to refinance a loan can be costly, depending on market conditions.

Adjustable rate loans (ARM)

An Adjustable rate loan will typically fully amortize with no balloon features. These loans may or may not have adjustment caps (floor or ceiling). The rate is determined by an index plus a margin. The indices used are generally U.S. treasury bond rates, Prime rate or LIBOR (London Interbank Offering Rate). Rates are adjusted at a certain point in time, using either the current rate of the index in question or the average of the index for a prior period. In either event, the index used will usually correspond to the adjustment term. If the loan is a three-year adjustable on the treasury index, then the index used could be the three-year treasury index.


		Some adjustable rate loans are fixed for an initial period and then will adjust after that period. For example a 5/1 adjustable is fixed for the first five years and there after will adjust each year. Please note that commercial lending is not standardized as it relates to programs and to guidelines. Banks must meet certain federal standards, but the index, margin, amortization, term and fees are components that are controlled by the lender is based on their risk profit analysis. Remember that this mortgage will be the greatest expense your investment property will be responsible for.

	Credit Lines


	Under a credit line agreement, the lender supplies a business with funds intended to fill temporary shortages in cash flow that are brought about by timing differences between outlays and collections. Typically used to finance inventories, receivables, project or contract related work.


	Short-Term Loans


	Used for seasonal build-ups of inventory and receivables. Generally repaid in a lump sum at maturity. These loans are made on a secured basis and are for a term of a year or less.


	Asset Based Loans



	Lender advances funds based on a percentage of your current assets. The loan is used as source of funds for working capital needs. Lender typically takes a security position in the assets owned by the business.

Contract Financing



Funds are advanced to you as work is performed. Payments by the contracting party are generally made directly to the lender.

		Term Loans



		Used to finance your permanent working capital, new equipment, buildings, expansion, refinancing, and acquisitions. Commercial banks are one of the major sources of funding. The term of the loan is based on the useful life of the assets being financed or used as collateral. Your projected profitability and cash flow, are two key factors lenders consider when making term loans.


			Factoring



		Factors actually buy or lend on your receivables and rely on their own credit and collection expertise. Essentially your customers become their customers. Firms who are unable to obtain bank financing use factoring. The cost of financing is usually higher than other forms of Short-Term financing.

	Equipment



	Loans are fully secured by the equipment being purchased. Typically banks loan 60-80% of the value of the equipment and is repaid over the life of the equipment.

Leasing


	Typically can be accomplished through a bank, leasing or finance company. Your business will be subject to the same type of review as when seeking a loan, specifically cash flow of company, value of lease object and useful life. Lease terms range from 3 to 5 years. At the end of the lease, there are generally three options: purchase, renew and return


		Commercial Property Types:

			Multi Family Office Retail Industrial Special Purpose


	Commercial Lending Ratios:

	Loan to Value Ratio Debt Service Coverage Ratio


	Information:

Underwriting Guidelines Financing Options Lending Document Checklist



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