A commercial loan in Washington can help you finance the start of your business or business expansion. It can also get you started on a commercial real estate investment portfolio.
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.
Seattle, Spokane, Tacoma, Vancouver, Bellevue, Everett, and Yakima are among the most economically significant and highly populated cities in the state of Washington. New business open all the time in these areas, and if you have a business plan ready and a clear vision of the future, you should have no trouble securing the financing to start your company. Contact a lender in any of these areas to discuss your commercial property needs.
The U.S. Small Business Administration, or SBA, offers affordable financing opportunities to help small businesses grow. Washington has one SBA District Office in Seattle, but the Portland office in neighboring Oregon is also accessible.
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 Washington SBA District Office.
The total gross state product for Washington is 14th in the nation. Significant businesses within the state include the design and manufacture of jet aircraft by Boeing, computer software development through Microsoft, Amazon.com, Nintendo of America, coffeehouses such as Starbucks, and tourism.
The state generates significant hydroelectric power. Trade with Asia also plays a significant role in Washington's economy. A Fortune magazine survey of the top 20 Most Admired Companies in the US has 4 Washington based companies in it, Starbucks, Microsoft, Costco and Nordstrom.
Seattle is the largest city in Washington State. Often regarded as the home of grunge music, Seattle ranks highest in the nation for coffee consumption. Seattle was the site of the 1999 meeting of the World Trade Organization and the attendant demonstrations by anti-globalization activists.
For anyone who likes the unique cultural opportunities that Seattle and other nearby cities offer, Washington State is the place to own a business. Let Lender411 find the best commercial mortgage rates for you in Washington.
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