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Securing a commercial loan in Ohio
Commercial Real Estate Loan Types
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.
Commercial Loan Requirements
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.
Ohio Commercial Loan Lenders
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.
Columbus, Cleveland, Cincinnati, Toledo, Akron, Dayton, and Springfield are among the largest and most economically stable of Ohio s cities. Many individuals and firms start businesses in these areas. To explore your financing options, check with a lender in the area where you plan to start your business.
Ohio Small Business Loan Resources
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:
- Must be for-profit.
- Must be operating within the United States and territories.
- Must have a reasonable owner equity for investment.
- Must seek other funding sources including personal assets before seeking SBA s help.
To see if you qualify for special considerations, contact your local Ohio SBA District Office.
About Ohio Business
Ohio is the cultural and geographical crossroads of America. Ohio is a major manufacturing state that produces mostly machines, tires, rubber, and steel. Tourism is also a major industry in Ohio. Parks such as Cedar Point and Kings Island are important amusement parks in the Ohio tourism industry. Ohio s Amish country is also a major pull for tourism.
Medical tourism is becoming popular for the state, as Ohio is known for its health care. Cincinnati Children s Hospital is the leading center for research into childhood diseases in the state. Columbus is the state s capital and largest city. Columbus is emerging as a globally recognized metropolis. The city has a diverse economy based on education, insurance, healthcare, retail, and technology.
Since Columbus is the state s capital, there is a large government presence in the city. Government jobs provide the largest source of employment for many Ohioans. In addition, there are a large number of people employed within higher education institutions. Ohio State University alone boasts roughly 68,000 students. Columbus is also home to Nationwide Insurance and J.P. Morgan Chase.
Regarding retail, Limited Brands is located on the east side of the city and is the parent company of the retail stores Victoria s Secret and Bath Body Works, among others. If you wish to own a commercial property in Ohio, Lender411 can help you find the best commercial mortgage rates.
Lenders in: Ohio.