Commercial real estate loans in IdahoStart with who will occupy the building. Much of the loan follows from that.

Most people looking for a commercial real estate loan in Idaho are buying one of two things: a building their own business will work from, or a building they will lease to others. Lenders treat the two differently, and the difference shows up first in the down payment and in whether SBA's programmes are open to you.

I write both, anywhere in Idaho, through many lenders who do both. Office, retail, warehouse and industrial, apartment buildings, mixed-use, medical offices, restaurants, hotels, business condominiums — the market finances all of them. What follows is what lenders commonly ask. It is where the conversation starts, not a term I am offering and not a bar you have to clear.

Owner-occupied or investment

Who is in the building changes the down payment

Across commercial property, lenders commonly ask for about 20–35% of the price down. That is the range for the market as a whole. Where a building falls in it depends a good deal on who will occupy it.

Your business occupies it. The down payment commonly runs lower, around 10–25%. The low end usually comes through an SBA programme. A conventional loan on a building its owner occupies more often sits around 15–25%.

You will lease it to others. An investment property commonly asks for more, with published figures running around 25–40% down.

These are starting points. They move with the building, the business and the lender, and narrowing them for your building is the first thing I will do once I know it.

Debt-service coverage

The building's income has to cover its debt, with room to spare

Lenders commonly measure a commercial loan against the building's own income. The ratio is the property's net operating income — what it earns after its operating costs — divided by the loan's annual debt payments. When the two are equal, the income only just covers the debt.

Lenders commonly want the ratio to reach about 1.20 to 1.25, meaning the income clears the debt by a fifth to a quarter. That is a starting point too, and it moves with the property and the lender.

The same ratio sits at the centre of a DSCR loan on a rental house. There it is figured on the rent against the monthly payment, which is a different test for a different kind of property.

How the loan is shaped

The loan usually ends before the payments do

A commercial loan's term is commonly shorter than the schedule its payments are figured on. The payments are worked out as if the loan ran far longer than it does, so when the term ends a large part of the balance is still owed, and it comes due at once. That lump is the balloon, and it is paid from cash on hand, by refinancing or by selling the building.

The terms lenders publish commonly run 5 to 10 years, and some run longer. The schedule the payments are figured on commonly runs 20 to 30 years, so the balloon comes due well before that schedule would have paid the loan off. Both move with the lender and the property. The rate I leave off this page; the place for it is the estimate you get on your own building.

What else commonly comes with it

A personal guarantee and a prepayment charge are both common

A personal guarantee. Lenders commonly ask the owners of the business to guarantee the loan personally, especially on smaller loans and on SBA loans. It means you are personally liable if the business defaults. SBA's own rule is that anyone holding 20% or more of the business generally has to guarantee it.

A prepayment charge. Paying a commercial loan off early commonly costs something. How the charge is figured differs from one loan to the next, so ask how it works on yours before you sign, especially if you might sell or refinance before the term ends.

SBA

SBA's two programmes, in SBA's own numbers

SBA has two programmes that finance commercial buildings, and both are for a business that occupies the building it is financing. SBA's rule is that the business uses at least 51% of an existing building and may lease out the rest, or at least 60% of a building it puts up new.

The 504 loan is for major fixed assets, including buying, building or renovating a building. It comes in two parts. A senior lender makes a loan at least as large as the 504 loan, and a Certified Development Company, working with that lender, makes the 504 loan, which usually sits behind the first on a second lien. The borrower puts in at least 10% in the ordinary case. That rises to 15% if the business has operated for two years or less, or if the building is limited- or single-purpose, and to 20% when both are true. SBA caps its own part, not the whole project: $5 million for a borrower and its affiliates, and $5.5 million per project for certain small manufacturers and energy projects. SBA describes the 504 as long-term, fixed-rate financing, and lists maturities of 10, 20 and 25 years.

The 7(a) loan counts acquiring, refinancing or improving real estate and buildings among its uses. Its limit is $5 million. SBA's rules set its longest term at 25 years, including extensions, and allow the part of the loan that buys or improves real estate extra time to finish any construction.

That 10% is the low end of the owner-occupied range above. It is SBA's figure for the ordinary case, and the cases above raise it. These are federal rules, so they read the same for a building in Rexburg as for one in Coeur d'Alene.