A commercial loan in Missouri is a great way to get your business or investment portfolio started off right. Secure funding for a new commercial property to pave the way for your new business or business expansion.
There are many different types of commercial loans. The type depends on the purpose of the property being purchased. A commercial loan could finance a hotel or motel, light industrial building, marina, apartment building, auto services building, bed-and-breakfast, mixed use property, mobile home park, multi-family unit, office, campground or RV park, convenience store, gas station, health care center, retail space, self storage compound, warehouse, or restaurant. Here are some of the most common types:
Traditional Purchase Loan
Purchase loans have fixed or adjustable rates, much like a residential mortgage. Interest rates are contingent on loan-to-value ratio, or LTV, and the property is used as collateral. There is some relative flexibility where credit and income is concerned with traditional commercial purchase loans.
Outstanding credit and high, steady income is often required for bridge loans, since they offer immediate capital on the short-term - typically one year - to suit a commercial project's beginnings, often from a private lender. Longer term financing should be pending while these short-term funds are borrowed.
Most used among lasting retailers and stable offices, the participating mortgageholder gives the lender a cut of the business or real estate revenue along with interest and principal payments every month.
Usually offered by private lenders because of their substandard requirements, hard money loans carry unusually high interest rates since they are particularly high risk. The property serves as the collateral for financing.
Credit and NOI
Commercial loans typically have strict credit and debt requirements, although the spectrum is wide thanks to the flexibility many private lenders offer. To have a credit (FICO) score of 700 or higher is ideal, but certainly many commercial loans have been approved for borrowers with credit in the 680 to 700 range. There is hope for borrowers whose credit is even lower, but lenders will look for compensating factors, such as a high net operating income (NOI), which should surpass the monthly mortgage by at least 25%.
Debt Service Coverage
Another factor lenders will examine is borrower debt service coverage, which is a ratio of the yearly net operating income over the mortgage payment. Businesses should have a debt service ratio of over 1.25, as determined by a licensed appraiser's estimates.
Debt Yield Ratio
Lenders will also consider a commercial loan borrower's debt yield ratio, which is their NOI divided by the total mortgage loan. A business with an NOI of $500,000 per year and a prospective loan amount of $7,000,000 will have a debt yield ratio of 0.0714, or 7.14%, meaning even if the property is foreclosed out the gate, the lender will receive a 7.14% return.
Commercial lenders, whether for small business, hard money or others can be difficult to find. Lender411 has a number of commercial lenders in its directory. Find one near you by filling out the form at the top of this page.
Major cities in Missouri that are hotbeds for local commercial real estate opportunities include Kansas City, St. Louis, Springfield, Independence, and Columbia. If you’re interested in owning commercial property, whether for business or investment purposes, in any of these areas, contact a local lender to explore your financing options. There are likely many commercial loan opportunities available in these cities.
Generally, small business owners can finance their endeavors in two ways: equity or debt financing. The SBA has recommendations for the type of financing business owners pursue based on their debt to equity ratio. Debt is considered funds borrowed and equity is dollars invested but not owed.
Small business owners can receive funds through equity financing without acquiring debt. In exchange for ownership share, another company raises funds for the recipient. The SBA recommends business owners take the equity financing route if their business has a high debt to equity ratio.
For the opposite case - a business owner has a high equity to debt ratio - debt financing is a safe option, and recommended by the SBA. Debt financing is the borrowing of money from a lending institution or private lender, to be repaid over time, and usually with interest. The allowable loan amount, length of repayment term, and interest rate will vary depending on the lender.
Help Through SBA
Your local SBA office may be able to offer aid through the Financial Assistance Program. Eligibility depends on several factors, although special considerations may be made for franchises, farms, medical facilities and more. Here are the basic criteria for eligible companies:
To see if you qualify for special considerations, contact your local Missouri SBA District Office.
Missouri is a state caught in between the South and the Midwest. It is a combination of western and eastern America. Major industries in Missouri include aerospace, transportation equipment, chemicals, printing, publishing, and beer. Tourism also plays an important part in Missouri's economy.
Missouri is the only state in the union with two Federal Reserve Banks. Kansas City is Missouri's largest city. Jazz and blues music have had strong influence on the culture of the city. Kansas City's Union Station is now home to Science City, restaurants, shopping, theaters, and the city's Amtrak facility.
Kansas City is also well-known for its broad parkways and numerous parks. Swope Park is one of the nation's largest in-city parks and includes a zoo, picnic park, lake, and two golf courses. If you enjoy an assortment of the old and the new, you’ll want to purchase a commercial property in Missouri. Lender411 can help you find the best commercial mortgage rates.
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