People think twice, thrice, or more than that before applying for small-balance commercial mortgage loans. They knock on the doors of large balance lenders and try to convince them to approve the loan. But, most of the time, they fail and return disheartened. 

We know you get a higher amount on closing a large balance mortgage loan. But, this is not the only thing that matters in the loan application process. If you dig into the reasons for loan rejections from the big lenders, you will understand the importance of small-balance borrowing. Compared to traditional or large-balance loan options, small commercial loans are better. 

Keeping aside the amount, the small balance commercial mortgage loan becomes suitable for you because of the following reasons. 


If you don’t have an Income documentation 

For every loan option, Income documentation is required. With the income document, the lenders don’t process the loan application as they find it risky. But, you don’t need income documentation for small balance commercial mortgage loans. 

This feature helps new business owners and startups with slow beginnings. The only thing is you should have a strong and satisfactory business plan. If necessary, you should seek help from professionals to prepare a business plan. 


If your credit score is below 650

One of the important things that lenders check is the credit score of the borrowers. The credit score defines the loan repayment ability of the borrower. Typically, the lender demands a credit score of more than 650. 

With small-balance commercial mortgage loan options, you don’t have to worry about your credit score. Even if the credit score is below 650, the small-balance commercial mortgage lender will process your application. It means your credit score will not impact your approval chances. 


If you want to close the loan application quickly 

This is one important reason if you are in urgent need of money for your business. Large-balance commercial loan applications take time because they have a rigorous underwriting process. The process completes in several stages because the amount is large, increasing the overall timeline of the application process. 

On the other hand, the small balance commercial mortgage loan application process completes in10-15 days. The number of days increases only if the problem is very complicated. The loan application completes quickly because the underwriting process is streamlined. 


If you are looking for a lower interest rate 

Compared to large commercial loans, small-balance commercial mortgage loan options have lower interest rates. It means you will get approval for quick approval for small with low-interest rates. Your long-term expenses will reduce. 

Large balance lenders refuse low-interest rates because the risk is higher for them. A larger portion of their money is at stake, that too, for the long term.  


If you don’t want to pay a higher lender fee 

Whether you are working with a large or small balance commercial mortgage lender, there will be some charges that you have to pay them. The charges vary from lender to lender.

Comparatively, the charges of small commercial lenders are less than that of large commercial lenders. It means you will save a few more bucks by applying for small-balance commercial mortgage loans. 


Which is the best small-balance commercial mortgage loan option?

By now, you might have determined if a small balance commercial mortgage loan is suitable for you. If you find it suitable, the next thing is to determine the right option. With so many options given by the lender, you should choose the best one. 

According to us, a Small Business Administration (SBA) loan is something that you need. It’s a government-based loan option, meaning the government agrees to cover a portion of your outstanding balance if you default. With this, small-balance commercial mortgage lenders get an extra layer of security. This is why they agree to lend money at lower interest rates. 

SBA loans are a versatile option because they can be used to cover any type of business expense. Typically, this option is common for real estate financing. The two reasons for the same are low-interest rates and lengthy rates. 

To qualify for SBA loans you and your business should meet several requirements. Some of the common requirements are, your business should be for-profit and located within the United States. Even the operations should be undertaken within the states to generate jobs for locals. Other than this, you (business owner) should have invested equally and shouldn’t be on parole. Most importantly, your business should have zero outstanding debt to the US government. 


The two SBA loan programs are:

SBA7(a) - The funding amount of the SBA 7(a) program is as high as $5 million. You can use this loan amount for a large variety of business purchases and have inherent flexibility. 

Usually, the SBA7(a) loan amount is used for purchasing real estate, land, construction costs, renovation, refinancing debt, and more. Last, the loan term ranges between 10and 25 years.

SBA504 loan- Just like SA 7(a) program, the SBA 504 loan program finances amounts as high as $ 5 million. It’s a long-term and fixed-rate financing program from the SBA. 

Typically, the SBA504 loan amount is used to purchase commercial real estate, machinery, and equipment. If required, you can utilize the amount to cover renovations on an existing commercial property or equipment upgrades. Also, you can use it to refinance certain commercial real estate loans. 


One important thing to consider 

For an uncomplicated loan process, you should work with an experienced small-balance commercial mortgage lender. An experienced lender will guide you thoroughly through the loan process as well as handle the processing of the deal. This becomes important if you are applying for the first time. 

You should check the relevant years of experience of the lenders before working. This proves how much they know about the application process and whether will it be possible for them to help you.

To know more about a small-balance commercial mortgage loan, contact Royale Capital.