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Arthur L Pepperman II

Commercial Funding Tips & Observations:

Wednesday, July 10, 2013 - Article by: Arthur L Pepperman II - Commercial Mortgage Solutions - Message

Commercial Funding Tips & Observations:

Although commercial lending is still tight, those lenders that are lending are becoming easier to deal with as 2013 progresses.


  • The economy seems to be growing, albeit very slowly
  • Some lenders have grown stronger and are beginning to have more funds to lend
  • Lender competition is back among lenders who have cleaned up their Balance Sheets

Most lenders, who are lending, are now offering 5 and 10 year fixed rates

Commercial rates have jumped a half a point since April, but are still very low historically

With the above said, lenders are remaining "born again" as to qualifications, so borrowers have to abide by old time qualifying criteria.


FICO scores between 620 and 660 are marginal, meaning the rest of the qualifying criteria have to be super strong and higher rates will probably apply.
FICO's at 680 and above are generally good, but still may affect rates.
FICO's at 720 and above will get you to the top of the pile.

Property Valuations:

Cap Rates have risen as property values have fallen
Cap Rate for financible properties are now ranging between 8.5% and 10%
NOI, after lender mandated reserves, will be a main factor in determining property value for LTV purposes

Lender Mandated Write Downs & Requirements:

  • Gross rental income is subject to a at least 5% vacancy write down for qualifying
  • Self Managed properties will be subject to an assumed 5% management expense of Net Gross Income
  • Replacement reserves, depending on lender, may be applied, prior to arriving at NOI
  • Debt Service Coverage Ratios (DSCR) start at 1.2 for SBA & USDA loans and some Owner Occupied conventional loans
  • Investor DSCR's start at 1.25
  • Deal weaknesses, if still fundable, may increase required DSCR to 1.3 to 1.6.


Cash or equivalent liquid reserves are required as part of the loan process.
Rule of thumb ---- Cash equal to 6 months of P & I shown in combo of business checking, savings and other assets shown in your Personal Financial Statement is normally required

Big Tip Of The Day:

Trends are all important
Property cash flow are determined by past Tax Returns
Declining sales and/or profit probably will not fly
Level sales and profit are usually OK
Higher sales and profits in 2012 will grab a lender's attention big time

Big TIP, if you are in the market to borrow commercially in 2013

  • 20112 Tax Returns will be required by underwriters
  • YTD P & L's will also be required
  • Realize minimizing property income and loading expenses to save taxes will work against you when applying for a new mortgage
  • If you hold your income producing property in an LLC, then have all rents, including your own business go to the LLC as well as have all expenses paid by the LLC. Doing this will increase your chances of a refinance by 1000%. Just running your mortgage payment through your LLC is almost an automatic lender denial.

News for Small Business Owners:

Loans under $1M are tough to get in this market. However, I have a few good lenders that are actually soliciting the small balance loans at terrific rates!


Business Lines of Credit:

Lines of Credit, based upon business owners' FICO and Debt Ratio
No Doc to $75K
Full Doc to the lesser of $500K or 15% of Sales

Smaller Multifamily Purchases, Refinances -- maybe Cash Out:

$500K to $1M
680 FICO and up
1.25 DSCR
90%+ occupancy in past 6 months

Other Investor Loans:

Same criteria, slightly higher fixed rates

Bridge and/or Hard Money Loans:

Bridge and/or Hard Money Loans
$500K to $50M
6 Months to 2 Years
No Doc
Need Solid Exit Plan!
PFS & Recent Appraisal or BPO


Reality Check for Borrowers in 2013:

Many Banks who issued 5yr balloon mortgages in 2008 are not in a position to renew those loans either by choice or because of problems with the FDIC.

DO NOT be embarrassed if you have a balloon coming due and get denied by your present bank lender. Almost 100% of the deals I have closed for my clients have been denied previously.

Please understand that 70% of all banks are not really lending commercial right now, but they do not advertise this fact. They are still taking applications in and may even quote, but they don't close ---- even if your request is really is good.

If your loan request makes sense and you are qualified; the chances are 7 to 1, in this market, that your loan request will ultimately be denied because the lender (Bank) is really not able, or willing, to lend. This is not a reflection on you, it is the reality of the continuing credit crunch.

If you need financing for your ballooning mortgage, call me and be candid. We do what others are not willing to do, because we have willing lenders that will compete for your business loan(s).

Second BIG TIP of the Month:

Commercial Rates are at the most desirable levels in years, but please DO NOT call me and ask me to quote a rate, because I can't with out knowing your proposed request, credit, cash flows, reserves, etc, etc.

In this market, it far better to have your "stuff" together and get qualified before the next guy or gal, than to worry about rates up front. If qualified, you will get the best rate that the strength your request can support.

With your complete information to qualify your loan request, I can get you an "Initial Approval" within days. With that Initial Approval, you can then make an informed decision to go forward with me to obtain a lender Conditional Approval that should virtually mirror my Initital Approval.

In the end, actually obtaining a loan that fits your needs and cash flow is far more important than the interest rate, that is a deductible expense, --- remembering that if you qualify, the rates are historically low now, but trending upward.

This may be the time relative to rates, that if you snooze, you may lose.

Third Big TIP:

Blanket mortgages are mortgages that cover more than one property. Generally, lenders will only do blanket mortgages if the properties are abutting. However, I have a conventional lender that will do blanket mortgage on non abutting properties, thus allowing one mortgage for a number of commercial properties that may be spread over a city area.

This is a huge advantage to someone who has many mature rental properties where the interest and depreciation deductions are getting smaller each year and the properties may need to be updated. Obtaining a new blanket mortgage, with cash out, on your high equity properties can be a excellent way to modernize your real estate portfolio and/or purchase new property.

I don't know how long this lender will continue welcoming non abutting Blanket Mortgages, so call me before the opportunity goes away.

2013 continues to be a good year for commercial lending. Take advantage of it, if your business will benefit by tying down a good loan to in preparation of the years to come.

Call me at 860-946-6637, 603-413-6510 or 800-381-9827. Let's make 2013 a terrific year together.


Arthur L Pepperman II, CCLC
Business Consultant & Commercial Lender
Commercial Mortgage Solutions, DBA CMS Funding
37 Flanders Road
Woodbury, CT 06798
860-946-6637 or 603-413-6510
866-610-7414 Fax

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