A small balance commercial loan is a type of a loan that is offered on all types of commercial property. Higher balance commercial loans can have rigorous underwriting requirements, while small-balance commercial mortgages are relatively easy to get closed due to a streamlined underwriting process. Along with less strict requirements, lenders can offer your commercial borrowers a greater selection of products and packages with more flexibility.
Small balance commercial mortgages are not served to full capacity in the commercial mortgage marketplace. Big banks and most other commercial mortgage lenders tend to overlook these loans. A small balance commercial loan is one that has a balance between $250,000 and $5,000,000. This loan amount range covers a large percentage of commercial property assets in the country.
A small balance commercial loan takes into context three main factors, and they are used for office building mortgage to match the needs of your borrower with our wide variety of loan options. These factors are:
-the type and state of the borrower’s property
– the cash flow of the property
-the borrower’s financial situation in relation to servicing the debt on the property
Small balance commercial loans are often referred to as ‘story’ loans because there is always a story behind the reason every borrower does not get financing from other conduit lenders and banks. The reasons vary from the property having fallen out of favor to credit issues raised by the banks.
In order for a Commercial Mortgage Connection to approach a small balance commercial lender with your loan, they would want to see the following:
Rent Rolls – rent rolls are a documentation of which person is paying for what in a particular property. That can be tenants in a multifamily property or business tenants in an industrial property, retail or office property. The rent roll assists in the determination of the property’s annual income.
Expenses - what are the total expenses that come with owning the property. Maintenance, Taxes and other costs such as landscaping are costs that come with operating the property (also known as Operating Expenses).
The rent rolls and the expenses will tell the story of the property good or bad. The purpose of analyzing both is to determine how much money will be left over (after expenses are paid) to service the debt or pay the mortgage. That will give the lender a ratio referred to as the Debt Service Coverage Ratio. Every lender has a different risk tolerance, but there's nothing different about calculating that level of risk using the rent rolls and expenses.
