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commercial mortgages and commercial loans
Commercial Mortgage
Qualification
Before we look at the criteria
CommercialBanc uses to qualify a guarantor, lets make it perfectly
clear what and who is a guarantor. A guarantor for a
commercial loan or
apartment loan is: An individual or other that
signs the loan note stating that in the event of default by the
borrower, the guarantor will step up and make good on the borrower's
obligation to repay the commercial loan note.
CommercialBanc recommends for
commercial real estate that you structure your request for a
commercial loan, apartment loan, or conduit loan as such:
Borrower:
The borrower 99.9% of the time is a corporation formed by the
individual owner(s) for the specific purpose of acquiring the
subject property. This structure is advantageous primarily to
reduce personal liability and take advantage of certain tax benefits
of corporate ownership.
Guarantor:
The guarantor for a commercial loan or
apartment loan is the individual(s) purchasing the commercial real estate, or the
principal owners of the borrowing entity.
The typical manner in which to
apply for a commercial loan is as follows:
Betty Boop and Johnny Jones decide to
purchase a 16 unit apartment building. Betty and Johnny form a
limited liability corporation (Boop Jones LLC.) to take ownership of
their new apartment building. Johnny and Betty structure the
ownership of the corporation equally having 50% ownership interest
each.
Betty and Johnny apply for their
apartment loan with CommercialBanc. The borrower would be Boop
Jones LLC., and the guarantors would be the principal owners of Boop
Jones LLC. or Betty Boop and Johnny Jones.
A common misconception.
Before we continue, CommercialBanc would like to clear the air on a
very common misconception: To qualify for a commercial loan the
corporation must have been in business for two (2) years.
WRONG. A company must be in business for two (2) years only if
the business is the source of repayment for the commercial loan.
For example: Johnny Jones owns a single stand alone building
housing his company, Johnny's Gym. If Johnny's Gym is the
source of repayment for the commercial loan then the business should
have a two (2) year operating history so that we can determine is
Johnny's Gym is likely to have the cash flow available to service
the debt.
So, if Boop Jones LLC., is a newly
formed corporation for the sole purpose of acquiring a 16 unit
apartment building, the two (2) year requirement of operating
history is not necessary. The apartment building is the source
of repayment or more accurately, the rents on the building are the
source of repayment for the apartment loan made to Boop Jones LLC.
And yes, CommercialBanc and most other
commercial lenders will
request 2 years of operating statements on the apartment building to
determine eligibility, not Boop Jones LLC.
The guarantor and commercial loans
The guarantor of a
commercial loan,
conduit loan, or
apartment loan is usually an individual(s) and must
have a principal interest in the borrowing entity. Or more
easily said, the guarantor for a commercial loan is the person that
owns or has an ownership interest in the borrowing entity. In
fact, most commercial lenders and commercial mortgage banking firms
require any individual with more than a 10% ownership interest in
the borrowing entity to be a co-guarantee for the commercial loan.
Commercial real estate is the primary
source of collateral and repayment for commercial loans and carries
more weight compared with the guarantor during the commercial loan
underwriting process. The guarantor(s) strength and/or
weaknesses will however impact the ultimate approval or denial of
the commercial loan or apartment loan request.
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commercial mortgages and commercial loans
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