The majority of today’s traditional commercial mortgage lenders require borrowers to provide their tax returns for their loan’s approval. This is a major pain for investors and small business owners. It’s also an opportunity for us to provide real value as a commercial loan solution provider.
1. Why Do Lenders Require Tax Information? In short, tax returns help lenders gauge all sources of the borrower’s income, verify their revenue, track any business losses, and determine the applicant’s overall eligibility for the loan. This works in the best interest of traditional banks who seek to guard against fraud and ensure their borrowers are fully able to repay the loan amount plus interest.
2. Why do Borrowers Struggle to Provide Tax Returns? Investors and small business owners often have difficulty producing the amount of documentation traditional lenders require, though not always for the same reasons. Perhaps the most common issue has to do with the tax write-offs real estate investors and self-employed professionals can take advantage of each year. The way these borrowers report on their income can negatively impact the DTI (debt-to-income) calculation a lender is likely to run when qualifying financing requests. But prospective borrowers have other reasons for chafing against tax return requirements. Some have experienced significant fluctuation with their business profits that is not reflected on their latest tax return, while others would simply prefer to provide as little as possible when seeking a loan.
3. What is the relationship between documentation and monthly interest rate for commercial loans? A general rule of thumb: the more documentation borrowers are willing to provide, the more likely they will be to secure the lowest possible interest rate for their commercial loan. To be sure, every piece of additional information helps a lender feel more confident about their approval decision. And with less risk, the lender can offer a more attractive solution for a prospective borrower. That being said, non-bank lenders in the small-balance commercial arena recognize the demand for alternative solutions that allow a greater number of investors and business owners to get approved for financing. As a result, lenders have begun to offer reduced documentation or stated income solutions with competitive pricing.While these loan products can’t match full-doc alternatives when it comes to rate, they offer more overall value for a wide range of today’s borrowers.
4. What are Common Reduced Documentation Loan Options? Traditional lenders, like banks, are likely to offer only full doc loans. On the other hand, non-bank alternative institutions can offer a range of solutions based on the amount of information a borrower is willing to provide.
Stated Income Loans: On the far end of the reduced documentation spectrum are stated income loans, which are typically offered by private, or hard money, lenders. The underwriting for stated income solutions typically involves a review of the borrower’s credit and the subject property’s cash flow. These types of loans often close in a short period of time and carry the highest interest rate.
Light Documentation Loans: This a blanket term that describes a wide range of solutions offered by non-bank lenders. Generally speaking, lenders will review some combination of the borrower’s credit and their property’s cash flow and appraisal.
Bank Statement Loans: A smaller subset of commercial lenders offers an additional alternative solution that allows business owners to qualify for financing via business bank statements. This is often a preferable solution for owners who feel as though tax returns don’t tell the whole story of their business’s success.
5. How Can You Tell Which Solution Best Meets a Borrower’s Specific Needs?
No two situations are the same. A good commercial mortgage broker always takes their client’s unique situation into account in order to provide a solution that meets the greatest number of needs. It’s vital to analyze each client’s request on a case by case basis in order to point them in the right direction. Ultimately, the key to identifying the best reduced documentation solution for your borrower will come down to your understanding of their needs and your familiarity with the lending options in the current market.
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COMMERCIAL REAL ESTATE LOAN PROGRAMS FOR BUSINESS OWNERS AND INVESTORS
American Commercial Equity
Business owners and Commercial Real Estate Investors Up to 80% LTV on all properties and this includes cash-out refinance transactions. You do not need to document income on tax returns for investor or owner occupied buildings. Recently stabilized property - we only need 75% occupancy for the preceding 90 days at a 1.15 DSCR and good credit. No seasoning on the title and the ability to use appraised value vs cost basis. We work with Out of State Investors and all small business owners that want to free up cash out / get equity out of their buildings. You have cash built up in the building lets lower your payments. Cash is King and gives you the freedom to be ready for the next opportunity. No reset program and 30 amortization.
Refinance commercial loans and get cash-out of your commercial building or apartment building, unlock your equity into cash. Business owners and Investors refinance your current commercial loan for a new 30 year amort. with cash out. Get your illiquid cash out - your only other option is to sell your building and pay taxes. The cash equity is yours locked in your business building, flex space warehouse or your apartment building and use your cash for new opportunities build your business or just use your cash out for anything you need you can even buy a boat and go fishing (you earned it)! We can lock your loan for a fixed rate at 30 years for a commercial refinance cash out. Check with your tax advisor for the tax free benefits too.
Learn more about our current programs available and submit the form below to discuss your financing needs on your project. A team member will contact you shortly after we receive your request or set up a 10 minute call with me.
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#talk to your tax person to confirm your circumstances, as tax laws change
Standard Prepayment Fees: 5% For First 3 Years
Property Types Tier I:Multifamily and Mixed-Use(Resi)
Property Types Tier II: Mixed-Use(Commercial),Office,
Retail,Light Industrial,Warehouse,Automotive,Daycare Center,Restaurant,Bar. No Gas stations. No Churches.
Eligible: U.S. Citizens,PermRes Aliens, Legal Entities