| If you have recently received a Letter of Intent or a | | | | For instance, the bank uses a computerized, broker |
| "Pre Approval" from a lender regarding a cash out | | | | opinion of value, rather than an appraisal to determine |
| refinance on your commercial property, you don't need | | | | a commercial properties value. |
| me to explain the pitfalls. Upfront appraisal fees (at | | | | Closing costs consist of a 1% fee to the lender and an |
| $3000 - $5000), environmental fees ($2000), start off | | | | origination fee to the broker, paid out of the line, at |
| an often expensive and "brain numbing" process to | | | | closing. So, you could literally have no out of pocket |
| fund your commercial loan. | | | | cash into the loan. Also the prepayment penalties are |
| If you are seeking to pull cash out of your commercial | | | | virtually nonexistent at $1,500 in the first three years, |
| property, there's now a better way. The commercial | | | | compared to 5-10% of the outstanding loan balance on |
| equity loan also called a commercial real estate line of | | | | a typical commercial loan. Plus you only pay interest on |
| credit "sits" in second lien position behind any first | | | | what you borrow, rather than the alternative of |
| mortgage that you already have in place. So, you | | | | cashing out a lump sum and paying interest on money |
| potentially do not need to refinance your existing first | | | | you may not be using. |
| commercial loan... | | | | However the commercial equity line is not perfect. |
| This is especially true if your sole goal is to simply pull | | | | Drawbacks include a relatively low loan amount, its |
| cash out of your property and you do not want to | | | | capped at $500,000. Underwriting is strict with both the |
| touch your existing loan. Perhaps your existing rate is | | | | borrower credit scores (need to be above 660) and |
| better than market or you have a high prepayment | | | | the Combined Loan to Value (Needs to be under |
| penalty or you do not want to incur the closing costs | | | | 75%). In addition, although very common with lines, the |
| associated with a new traditional loan, etc. | | | | loan is based off an adjustable rate, which is tied to |
| In any case, the commercial equity line eliminates many | | | | Prime. |
| negatives. For example, there are no upfront fees or | | | | All in all this is an excellent option, especially for owners |
| upfront third party fees, like appraisal, title, or | | | | that are seeking a way to unlock their commercial |
| environmental. The bank essentially uses a | | | | equity and not go through the expense and "brain |
| comprehensive software program for these reports. | | | | damage" of a traditional commercial loan. |