Conventional commercial loans are flexible mortgage solutions that are provided by a bank, credit union, or savings institution that can be used to finance a range of commercial properties. Both novice and experienced commercial property owners may use these loans as the first-lien financing on a commercial property.
Conventional Loan Highlights
Eligible Properties: Multifamily, Office, Retail, Warehouse/Industrial, Hospitality, Medical/Healthcare, Self-Storage
Loan amount range: Minimum $1,000,000
Interest Rate: Fixed rates vary. Floating Rates from 2.30% over LIBOR. Current LIBOR Rates can be found HERE
Loan Term: 3 to 15 years
Amortization: 10 to 30 years
Maximum LTV: 80%
Minimum DSCR: 1.20x
Minimum Debt Yield: 7-8%
Recourse: Can be non-recourse, limited-recourse or full recourse.
Prepayment: Can be no prepay penalty, step-down, or flat-rate.
Advantages of Conventional Loans
Conventional commercial loans features create several advantages that make the loans attractive in various situations:
- Conventional loans can often finance distressed properties, since the loans are normally underwritten not only on the basis of a property but also on account of a borrower s personal guaranty.
- Conventional loans are available to inexperienced borrowers who have strong financial positions, as they can rely on their personal guaranty more than their experience during the application process.
- Conventional loans are available for less expensive properties that don t require borrowing a large amount.
- Conventional loans are faster to underwrite than government-backed loans that must go through a federal agency.
Disadvantages of Conventional Loans
Even with their many advantages and overall flexibility, there are some disadvantages that come with conventional commercial loans. Some of the more noteworthy disadvantages are that:
- Borrowers normally must have a good credit score and sizable post-closing net worth and liquidity in order to meet the personal guarantee requirements.
- Full- and partial-recourse conventional loans leave borrowers personally liable if a loan goes into default.
- Conventional loans often come with shorter fixed interest rate periods than commercial mortgage-backed security loans (CMBS) loans offer.
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