Small business owners and commercial property investors all have goals they’d like to accomplish, and this often means they need a commercial mortgage. However, many commercial property owners are unable to qualify for a bank loan for any number of reasons. If you’re one of those individuals, you might be asking yourself, “Now what? Do I take out a hard money loan? A merchant cash advance?” And while those might be the right options for some, there’s a middle-ground: small-balance commercial mortgages from alternative lenders.
Whether you’re dealing with past credit issues, an inability to verify your income to a bank’s satisfaction, or simply need a commercial mortgage faster than a bank can provide, small-balance commercial lenders are a great resource for non-bankable borrowers. These lenders understand small business owners and commercial property investors, as well as the unique challenges that they face. We’re here to listen to borrowers, understand their situations, and do our best to provide them with a commercial mortgage that fits their needs.
So, if you’ve been turned down by your bank, here’s what you need to know about small-balance commercial mortgages, alternative lenders, and what you’ll need to apply.
What is a small-balance commercial mortgage?
Generally, any commercial mortgage under $5 million is considered a small-balance product, but it can be difficult to find lenders who will lend less than $2 million. However, true small-balance commercial lenders are out there. For example, APEX offers mortgages between $25,000 and $1.5 million for commercial property owners.
How do I find a lender that’s a good fit for me?
While there are fewer alternative commercial lenders than there are banks, you do still have quite a few options you’ll need to evaluate to determine which lender will be the best fit for your needs. Here are some things you’ll need to think about:
- How much money do I need to accomplish my goal? Whatever it is you’re looking to achieve, you’ll no doubt have an amount in mind that will get the job done. Small-balance commercial lenders all have different loan limits, so it’s important to know the amount you’ll need before you begin applying for a mortgage. That way, you can eliminate any lenders who won’t be able to get you the amount of money you need.
- What kind of rate and terms am I comfortable with? Of course, everyone would love to get the lowest possible rate for their commercial mortgage, but it’s not the only thing you should consider. For those dead set on a lower rate, adjustable-rate mortgages (ARMs) are an option, but you should be prepared for the possibility that your rate could rise at any time. If you’re looking for more stability and a consistent monthly payment through the life of the loan, a fixed and fully-amortizing product is going to be your best bet. You’ll likely pay a higher rate than you would initially on an ARM, but you don’t need to worry about your payments increasing. Additionally, keep in mind that commercial mortgage rates in general will always be higher than standard residential mortgage rates.
- Am I OK with a lender selling off my mortgage? A number of small-balance commercial lenders securitize their mortgages, which means they bundle them together and sell them to investors. If you’re all right with your mortgage being serviced by someone other than your original lender, this might not be an issue for you. However, if you’d prefer to deal with that lender for the life of the loan, you need to work with a lender who portfolios their loans. All that means is that they will not sell off the loans they make and will service them until they are paid off.
The best way to find the right lender is to consider these questions, think about what you want and need from a lender, and then have a conversation with them to determine whether they’re the best fit for your situation.
Getting turned down by the bank is never a good experience, but it doesn’t have to be the end of the road for you. You’ve got plans, and small-balance commercial mortgage lenders can help you execute them by providing the funds you need. Take the time to decide what it is you’re looking for in a lender and in a mortgage, and make sure to have a conversation with any lenders you’re thinking of doing business with. The right lender will guide you through the process and help you to secure the financing you need to achieve your goals.