How to Get a Loan for Commercial Property

Getting a commercial real estate loan in Rochester or anywhere in Macomb County takes more preparation than a residential mortgage, but the process is predictable once a buyer knows what lenders care about. Walking in with a complete package cuts weeks off underwriting and often leads to better terms because the lender sees a buyer who is ready.

Start by picking the right lender for the deal. Local community banks and credit unions in Macomb and Oakland County handle many of the deals up to around $5 million. They know the neighborhoods, move quickly, and often approve deals that national lenders pass on. Regional banks come in for larger deals or more complex structures. SBA lenders specialize in owner user deals where the borrower will occupy more than 51 percent of the building, and SBA 504 and 7(a) loans can finance up to 90 percent of cost, which makes them powerful for small business owners buying their building.

The documentation package is standard. Three years of business tax returns, three years of personal tax returns, a current personal financial statement, a schedule of real estate owned, and a business plan or use of proceeds narrative. For investment property, add the rent roll, trailing 12 month operating statements, and copies of leases. Environmental reports, usually a Phase I, are required for almost all industrial property and many older commercial buildings in Macomb County.

Underwriting focuses on three things: debt service coverage, loan to value, and borrower strength. DSCR needs to be at least 1.20 to 1.25, meaning NOI covers the new debt payment by that ratio. Loan to value typically tops out at 75 to 80 percent for investment property and 85 to 90 percent for SBA owner user loans. Borrower strength covers credit score, net worth, liquidity after closing, and industry experience. Weakness in any one area can be offset by strength in another, but weakness across all three usually ends the conversation.

Michigan’s property tax uncapping directly affects DSCR calculations. A lender looking at the seller’s tax bill might underwrite to a DSCR that looks strong but evaporates once taxes reset at closing. Good lenders and good brokers build the uncapped tax into underwriting from day one. That protects the buyer from discovering in year one that the loan is tighter than it looked on paper.

Term sheets, once issued, come with conditions. Appraisal, environmental, title, and lease estoppels all need to clear before closing. Any one of those can delay or derail a deal, which is why smart buyers lock in longer purchase agreement contingency periods, usually 45 to 60 days, rather than the 30 days common in residential. TDG Commercial, one of the best commercial agents in Rochester MI, walks clients through lender selection, package preparation, and term sheet review so the path from offer to closing is predictable across the Macomb County market.

One last note for owner user buyers. The SBA 504 structure splits the loan between a conventional lender covering 50 percent and a certified development company covering 40 percent, with the buyer contributing 10 percent down. The CDC portion comes at a fixed rate for up to 25 years, which is powerful in a rising rate environment. SBA 504 works well for businesses buying their operating location, and the lower down payment frees capital for equipment, inventory, or working capital rather than tying it all up in the real estate.