As a mortgage broker, your success depends on helping your clients accomplish their goals in the most cost-effective way possible. You can grow your brokerage’s bottom line by linking more clients to feasible commercial lending options. Here’s a look at how commercial real estate financing works to effectively help your clients achieve their objectives in the property market.
Types of Real Estate Loans
Real estate financing requirements differ from borrower to borrower. The availability of several types of commercial property loans addresses the variations in financing needs. This increases the chances of finding a good option suiting the needs of any borrower.
With a proper grasp of the different real estate loans available, it’s easier to help your clients find viable funding for their projects. Capital sources for commercial real estate purchases include:
A commercial property buyer may use this type of loan to acquire an already built commercial property. Any type of business may apply for this loan to acquire a facility for storing inventory/assets or for operational purposes. After making a down payment (10 percent of the property’s cost), factories, wholesalers, retailers, hospitality services, professionals services, and many more may access this type of financing. Acquisition financing is relatively cheap due to its usually low-interest rates and is therefore ideal for many small businesses.
These loans have multiple applications, and the funds are generally injected into new construction projects or the improvement of existing buildings. The mortgage-secured funds are available as needed after approval. A lender may also disburse the funds in chunks based on the construction project’s progress.
Investors can take construction loans to buy fixed assets, such as interior or exterior property upgrades. Owner-occupied buildings, parking lots, landscaping, and utilities are also viable ways to utilize these funds.
However, the financing arrangement changes upon the construction project’s completion. It’s reorganized into a lower interest, longer term note.
You can help your clients access these loans when they need capital to prepare land for construction. The funds are injected into pre-construction activities like running electrical lines, site excavation and earthwork, demolition, and road construction. Usually, the lender uses the property as collateral until the borrower sells it or turns it into an investment property capable of supporting long-term financing.
Permanent Real Estate Loans
These are post-construction financing options that commercial real estate investors may require to pay off short-term construction or development loans. They have the longest repayment periods and lowest interest rates. To approve these loans, most large banks require a borrower to have a stellar credit history, healthy financials, and a heavy down payment.
Hard Money Financing
Real estate brokers can recommend hard money credit to clients unable to obtain financing in the past due to poor credit ratings. As the property being purchased serves as the collateral in this scenario, investors with a lower credit score may qualify for these loans. However, most banks won’t lend to commercial property buyers with a poor credit history. Thus, brokers can increase their competitiveness by offering their clients the option of lenders who are willing to lend to them.
Fix and Flip Lines of Credit
Investors can take these loans to acquire, upgrade, and resell the property for a profit. Full financing for the purchase and repair cost is usually available, provided the entire loan is about 70% of the estimated post-repair value.
These are suitable for investors seeking out short-term financing while waiting to qualify for longer-term credit. Bridge loans usually have a 3-year repayment period and can be used to pay wages or utility bills.
Important Variables to Address
To be able to point your client in the right direction when they’re seeking commercial real estate financing, consider these variables:
- What stage of the real estate process is the client’s business in?
- Is the client looking to renovate, build, or buy an existing structure?
- What is the client’s credit history, and do they have the collateral for the type of loan they need?
- What is the client’s industry? A client’s type of business and industry will usually determine the most suitable type of real estate loan for their operations. The requirements for a construction company may differ from those for a B2C firm.
- Why is the client looking for financing, and which lenders are likely to meet their needs?
Take your time to understand your client’s financials, unique financing needs, and eligibility for loans as you help them find the best loans for their projects.
Offering Value-Added Brokerage
When clients come to you for help securing real estate financing, you can do more than just point them in the right direction. For example, helping them make the most of the obtained funds adds value to the overall customer experience. There are several ways to stand out by being extra resourceful, such as:
- Offering to help with a wide variety of financing options-This requires that you have a variety of real estate lenders on hand because there aren’t too many lenders that can satisfy all your clients’ financing requirements.
- Establish relationships with multiple stakeholders-Your clients will be pleased with your ability to connect them with the best real estate brokers or contractors available. In this way, you’ll be helping them utilize the borrowed funds appropriately.
Helping your clients obtain the best real estate loans should be an important part of your broader success strategy. As a brokerage, you can leverage insights into different types of lending and learn to offer borrowers options that are best suited to their unique requirements.
Would you like to learn more about how commercial real estate financing works in California? At Fidelity Mortgage Lenders, we’re happy to help. Contact us or give us a call at (800) 752-9533 to get started.