Traditional lenders have tightened up their lending standards since the subprime mortgage crisis. Find out how to qualify for a Texas Commercial Loan and what options are available.

Texas Commercial Lenders have tightened their lending standards since the Great Recession. While the requirements have loosened up a bit for larger firms, small businesses are still bearing the weight of the subprime mortgage crisis with only 20 percent of those that apply for a bank loan actually getting one. The 80 percent that receive a rejection notice usually fell short in one of three areas: the necessary collateral, the capacity to repay, their credit score and creditworthiness. Banks often prefer credit scores that are in the 700 range or greater.

The debt service coverage ratio is used to determine if the business will or has generated enough income to pay back the loan and interest plus maintain some cushion. For conventional commercial lenders, that ratio is generally set at 1.25 to 1.45 or greater. In essence, this ratio represents the cash a business has available to service its debt which includes the interest and principal payment of the loan. A ratio greater than one shows that the business has enough to pay its obligations. In order to calculate your debt coverage ratio, divide total net annual income by total annual debt.

Gone are the days when lenders offer Texas Commercial Loans of 80 percent loan-to-value. Nowadays, borrowers are lucky to get 60 to 70 percent loan-to-value. Know what your collateral is valued at before hitting the lending circuit. If you require a larger loan than your business or property is worth, you may consider using your home as collateral or any other assets. You’ll need your balance sheets in order to demonstrate a consistent cash flow. In addition, you will often be required to share your monthly financial statements while the loan is being paid back. Other types of loans that may work for an already established business include equipment loans, business lines of credit, and merchant cash advance.

Private Hard Money Lenders

A private hard money Texas Commercial Loan is asset-based. They do not consider your credit score or creditworthiness to the same degree that a conventional lender does. You will need to share your business plan and exit strategy. Payments are typically interest only until the project is complete and has been sold or the borrower has rehabbed a property and is now obtaining a traditional loan based on the after-repair value (ARV). Businesses can also obtain hard money loans as long as they have a form of collateral. These loans are typically 75 percent loan-to-value, though this figure varies. Unless you know someone in the world of private lending, it’s often easier to access the private lender through a broker that works with hundreds and knows what type of business or property each investor is interested in.

A private hard money loan is a short-term loan with terms that are usually in the range of three months to two years. These types of loans provide access to quick capital.

At Level 4 Funding, we pride ourselves in understanding your needs and saying yes when banks have said no. Call us to see if we have the Texas Commercial Loan that you need for your next project.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701

About the Author:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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