Financing suggestions for first commercial property

[Nick Garzini]

I have my first commercial property under contract in Crystal Lake (North of Chicago), IL and I am looking for recommendations for lenders. I am honestly not really sure where to start for commercial loans. I have a backup private money option available, but would like to try for a conventional loan. Any suggestions are appreciated! A few details: Looking for $350k loan Projected DSCR: 1.47 Also - the 2 ground floor retail spaces have 2-year leases. The 4 residential units are occupied, but month to month. The tenants are willing to sign new leases. Should I get the current owner to execute new leases to aid in financing? Thank you!

[Joel Florek]

I always recommend looking for local or regional banks that have a strong commercial loan department. Generally I look up banks in the town where I am investing and start calling all the banks I have never heard of. I then ask to speak with a  commercial loan banker. They may say they dont do commercial loans or they connect you to someone. Then I start asking my questions to see if my deal fits within their box. If it does I try to ask about their bank to learn a bit more about them. 

A few reasons for the local bank vs the national banks. 

1. The box is very grey in a local bank. By this statement I am referring to the local banks ability to lend based on the relationship you establish. Banks need to give loans and commercial loans are held in house typically so that is their main recurring revenue source. Local banks may let you get a 2nd and 3rd position loan behind theirs so you only have to put 5% or 10% down on a deal.

2. Less red tape. This ties into #1 but is important. When you deal with the VP of commercial lending for the entire bank or that entire region(might only be a team of 1 or 2 covering an area) then you are dealing with one of the decision makers. They usually know the drill well and can push through your paperwork quickly. This gets deals done fast which is important. 

Horror story on dealing with a larger bank. I had been working a deal to purchase a 16 unit residential property. I was working with the bank(one local branch out of dozens. Because of the size of the loan it had to get board approval. The board members were located at a different location and I had never met any of them. Needless to say after getting under contract and having 2 weeks to go before we were supposed to close they pulled the plug because they wouldn't budge outside of their box. Good thing I had the local bank in my back pocket and they moved quickly to catch up on paperwork and allow us to close on time. It was an important lesson.

Best of luck, and happy investing!