Commercial Financing Question

[David Avetisyan]

I had the following question regarding commercial loans:

Can you used borrowed money from family and/or friends to apply towards a commercial loan? 

Thanks in advance 

[Bill Gulley]

@David Avetisyan

For a new commercial borrower, everything is considered. Your equity in the collateral, your management and business experience, your project and personal assets and liabilities, your personal credit history and commercial account history as well as your reserves and ability to access other capital requirements, it all matters.

If and when you get a no, you need to understand what that no is based on, there are "prudent lending practices" at work here, all banks follow the basic underwriting guidelines and debt-income, LTV and debt-service ratios or spreads. Depends on what the issue is because if the no is based on basic underwriting aspects, you'll probably get a no from all insured lenders.

Banks can look at compensating factors with more leeway in commercial loans, your business experience might be strong which might make up for less equity in a project or being lower in your net worth. These are areas where it makes a difference to shop lenders, one may say no, another may lend.

As mentioned, banking relationship matter, build that. You do that with deposits as well as past lending history, it takes time. Don't just use one bank, always have a backup because their policies can change, there probably is no commitment to refinance a balloon loan.

While the purpose of the loan and project must be viable, be conservative with estimated revenues, vacancy issues, maintenance, by conservative I mean don't overstate the upside to you, it's almost like showing the worst case. What borrowers don't understand is that banks have more data than you do on most types of projects, if they think you're too low, say on maintenance, they will probably tell you. Being accurate in reality demonstrates management skills and your knowledge.

They are also there to help new borrowers, all you need to do is convince them you can manage whatever your deal is and they will tell you what they need. Be honest and truthful, don't try to blow smoke up a lender's vault.

So, talk to lenders, see where they are, banks have specialty niches in lending just as investors specialize in certain areas. One might jump on a 24 unit apartment where the next one would rather do an ag loan or construction loans. This is especially true with small and regional banks. Most any will do a single family residence. Good luck :)