Our conventional lending options offer the most aggressive pricing in the industry. No matter the size of your financing request, our firm will support you throughout each phase of the transaction.
Conventional CRE loans can be used for purchasing new commercial properties, refinancing existing loans, or taking out equity from a commercial property.
Down Payment: Borrowers typically need to make a down payment, which can range from 20% to 40% of the property’s purchase price, though this can vary based on the lender and the specifics of the deal.
Interest Rates: These can be fixed or variable. Fixed rates remain constant throughout the life of the loan, while variable or adjustable rates can change based on market conditions.
Amortization: Conventional CRE loans often have an amortization period of 20-30 years, even if the loan term is shorter. This results in lower monthly payments but might lead to a balloon payment at the end of the loan term.
Lenders will assess both the borrower’s financial stability and the property’s viability.
Debt Service Coverage Ratio (DSCR): This is a key metric used in commercial lending. It measures the property’s annual net operating income (NOI) relative to its annual debt service. Lenders typically look for a DSCR above 1.2, indicating that the property generates sufficient income to cover loan payments.
Loan-to-Value (LTV) Ratio: This is the ratio of the loan amount to the appraised value of the property. A typical LTV for a conventional CRE loan might range from 65% to 80%.
Creditworthiness: The borrower’s credit score, financial statements, and business history will be scrutinized.
Stability: With fixed-rate conventional loans, borrowers have predictable monthly payments.
Equity Building: Over time, borrowers build equity in the property as they repay the loan.
Balloon Payments: If the loan’s term is shorter than its amortization period, borrowers need to be prepared for a large balloon payment at the end or consider refinancing options.
Refinancing: Conditions at the end of the loan term might not be as favorable as when the loan was first taken out, posing a risk for those considering refinancing.
In summary, a conventional CRE loan is a foundational financial product for commercial real estate investors and businesses. While it offers stability and the chance to build equity, borrowers must be prepared for its requirements and potential end-of-term challenges. As always, consulting with financial professionals or lenders can provide clarity on the best loan product for a given situation.
