Navigating the Small-Balance Commercial Loan

There are plenty of lenders that offer small-balance commercial loans. Our job as a solution provider is to identify the best possible program type for clients unique needs.

We develop strong relationships with our clients across the spectrum. That way, we’ll have more solutions available for our borrowers.

Here we break down 4 major direct lender types and the attributes that will help you decide whether they are a good fit for your clients.

Traditional Banks

It’s true that banks offer attractive rates, but their credit requirements and underwriting protocols may make it difficult for many borrowers to secure funding. Banks typically don’t offer extended loan terms, so funding long-term investments may be less certain. Closings may require long reviews. And property types may be limited.

Advantages:

  • Lower interest rates
  • Multiple financing options
  • Convenience and accessibility

Disadvantages:

  • Cumbersome application process
  • Lengthy approval process
  • On-going reporting requirements
  • Shorter loan terms (5-10 years)

The Small Business Association (SBA)

The U.S. Small Business Administration (SBA) is a federal agency committed to furthering the growth and development of small businesses. One way it does this is by guaranteeing loans to small businesses made through lending partners nationwide.

SBA loans include lower down payments and longer repayment terms than conventional bank loans, enabling small businesses to keep their cash flow for operational expenses and spend less on debt repayment.

Advantages:

  • Up to 90% financing
  • Terms up to 25 years
  • Fixed and variable rate options
  • No balloon payments
  • Most for-profit small businesses are eligible
  • Owner-occupied businesses or properties

Disadvantages:

  • Lengthy processing and approval timelines
  • Additional collateral may be required including inventory, receivable, equipment and equity in personal residence
  • Fees are high
  • Personal guarantees are required
  • Investor transactions are not eligible

Agency

Fannie Mae provides apartment financing (5+ units) from $750,000 to $3,000,000 nationwide and up to $5,000,000 in certain markets. Their focus is workforce housing that provides affordable housing to families whose earnings are at or below 100% of the area median income. Eligible property types include conventional, rent-restricted, cooperatives, seniors, student housing, and manufactured housing communities.

Advantages:

  • Highly competitive pricing
  • High LTVs
  • Loans are non-recourse
  • Interest only – partial or full term
  • Fannie Mae supplemental mortgage loans or 3rd party subordinate debt allowed

Disadvantages:

  • Properties must demonstrate 90% occupancy for prior 90 days to be eligible
  • Liquidity and net worth requirements for borrowers
  • Different underwriting guidelines and structure based on size of market

Freddie Mac provides mortgage funding for apartment loans throughout the nation, including large metropolitan areas, mid-market cities, and smaller communities. Eligible properties include conventional multifamily housing with five residential units or more, including conventional housing with tax abatements and Section 8 vouchers.

Freddie Mac also supports affordable housing. Historically, roughly 90 percent of the loans financed in any given year support low- and moderate-income households who earn no more than the area median income. Loan amounts range from $1,000,000 to $5,000,000.

Advantages:

  • Highly competitive pricing
  • High LTVs
  • Loans are non-recourse
  • Interest only – partial or full term
  • Cash-out

Disadvantages:

  • Properties must demonstrate 90% occupancy for prior 90 days to be eligible
  • Liquidity and net worth requirements
  • Different underwriting guidelines and structure based on size of market
  • No supplemental financing available
Non-Bank Lenders

Non-bank lenders typically have less rigid restrictions than banks. They are financial institutions that extend credit or loans to consumers and businesses who do not qualify for financing from traditional lenders. These lenders include Marketplace Lenders, hard money lenders, conduits and life companies. They offer permanent, bridge, and working capital loans. Loan amounts typically range from a hundred thousand dollars to $100 million depending on the lender and their source of capital.

Advantages:

  • Streamlined underwriting process typically resulting in faster closing timelines
  • Ability to finance credit-challenged borrowers or transitional properties
  • No depository relationship required

Disadvantages:

  • Rates and fees tend to be more expensive
  • Lower leverage
  • Less government oversight

Here you can see the options that are offered. As a commercial mortgage provider, we have every option available to us which we pass on to our commercial clients. We just broke it down for you, keep in mind that we offer Fannie Mae and Freddie Mac loan programs, and we are on board with most of the commercial lenders that cover an entire spectrum of loan programs, there’s really no program that we can’t handle.

Contact our office for more information about our small commercial loan programs.

Have Questions or Need Help?

Call us now at (800) 455-6200

Request a call back or email us your questions!