Page 10 - How To Refi Cashout Your Commercial Property Before The Bank Says....
P. 10
Chapter 2
Commercial Loan Types
Let’s discuss the difference between small Balance and large Balance loans.
Small balance commercial loans are roughly between 100k-5m. Small balance
commercial loans are not very easy to obtain with flexible terms from traditional
lenders because these loans pose a great risk to traditional lenders that’s why they
structure them with balloon payments.
This happens because the balance of the loan is so small compared to deals that are
larger with the same underwriting costs. The costs and time it takes to underwrite a
small deal are the same costs to do a large scale deal.
Different studies cite 80% of commercial loans are denied by banks. Source
Three reasons responsible for the denial is because small business owners may
have credit challenges, insufficient income on tax returns, and banks assume
business owners & investors have a higher default risk.
Large Balance Commercial Loans
Large balance loans range from 5 million and up. Traditional sources prefer these
deals because usually these deals have multiple parties involved with investment
banks, insurance companies, and the individuals that qualify for these deals usually
have an equivalent net worth of the funding transaction. Most of these deals are
for hotels, city redevelopments, apartment buildings, and retail centers.
Bigger deals are what the banks like, plain and simple. Their money is protected in
those deals thru partnerships with insurance companies and other banks.
