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Retail Property Loan

Owners looking at retail property loan options are often surprised at the broad range of commercial real estate loans programs available as this is one of the preferred building types by capital sources.  This is a broad category, that is further sub divided between owner occupant or investment facilities, single or multi unit, corporate credit tenants, neighborhood retail, big box retail, etc. 

Retail Property Mortgage

Below is a quick break down of underwriting guidelines within this property type.    

LTV

Loan to value restrictions on retail property refinances are normally capped at 85% (Owner occupied buildings).  For owner occupied, purchase transactions borrowers can expect to see 90% financing.  The SBA 504 program, or SBA 7a Loans are two strong options.  Investment financing for retail properties, is more limited.  60 - 65% loan to value is now the norm, with few exceptions. 

 

Retail Loan DSCR

Debt Service Coverage Ratio restrictions are typically set at a 1:1.2 for this building type.  Meaning that for every $1.20 of net income (income after taxes, insurance, repairs etc) the property produces, the mortgage payment will not exceed $1.00.  Said in another way, after all expenses and the mortgage have been paid, the owner will need to net $.20 to qualify for the best loan programs.

Exceptions can be made on this rule for retail building refinances.  For example, stated income loans can be an outstanding option for owners that have low debt coverage ratios due to either overstated expenses, current high levels of vacancy, or understated income, etc.  Another example would be an investment property with a AAA corporate guaranteed leases, which can see DSCR’s as low as 1.05. 

Tenant Evaluation

Tenant evaluation is important within the retail property category. Lenders scrutinize the time left on the current leases and other relevant information.  Often, lenders will not want to have the fixed period of the loan to exceed the time left on the current lease.

Property Analysis

Market value and market rent is important and will be evaluated and compared to the subject property.  Age, appearance, location, accessibility, and local market conditions, as well as other factors are considered. 

Credit Worthiness

The personal credit worthiness of the borrower will be examined.  680 credit score is normally the minimum for the best finance options.  Exceptions can be made on this as some conventional lenders will consider scores as low as 600.  The overall strength of the property, tenants, net worth, DSCR, and LTV can offset concerns of low credit scores.

We have some of the best retail loan options in the market today. Get preapproved now on your retail building loan by filling out our commercial loan application.

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