Michigan Commercial Loans

Securing a commercial loan in Michigan

A commercial loan in Michigan is a great way to secure the funds you need to purchase a piece of commercial real estate for your business or investment portfolio.

Commercial Real Estate Loan Types

There are many different types of commercial loans. The type depends on the purpose of the property being purchased. A commercial loan could finance a hotel or motel, light industrial building, marina, apartment building, auto services building, bed-and-breakfast, mixed use property, mobile home park, multi-family unit, office, campground or RV park, convenience store, gas station, health care center, retail space, self storage compound, warehouse, or restaurant. Here are some of the most common types:

Traditional Purchase Loan

Purchase loans have fixed or adjustable rates, much like a residential mortgage. Interest rates are contingent on loan-to-value ratio, or LTV, and the property is used as collateral. There is some relative flexibility where credit and income is concerned with traditional commercial purchase loans.

Bridge Loan

Outstanding credit and high, steady income is often required for bridge loans, since they offer immediate capital on the short-term - typically one year - to suit a commercial project's beginnings, often from a private lender. Longer term financing should be pending while these short-term funds are borrowed.

Participating Mortgage

Most used among lasting retailers and stable offices, the participating mortgageholder gives the lender a cut of the business or real estate revenue along with interest and principal payments every month.

Hard Money

Usually offered by private lenders because of their substandard requirements, hard money loans carry unusually high interest rates since they are particularly high risk. The property serves as the collateral for financing.

Commercial Loan Requirements

Credit and NOI

Commercial loans typically have strict credit and debt requirements, although the spectrum is wide thanks to the flexibility many private lenders offer. To have a credit (FICO) score of 700 or higher is ideal, but certainly many commercial loans have been approved for borrowers with credit in the 680 to 700 range. There is hope for borrowers whose credit is even lower, but lenders will look for compensating factors, such as a high net operating income (NOI), which should surpass the monthly mortgage by at least 25%.

Debt Service Coverage

Another factor lenders will examine is borrower debt service coverage, which is a ratio of the yearly net operating income over the mortgage payment. Businesses should have a debt service ratio of over 1.25, as determined by a licensed appraiser's estimates.

Debt Yield Ratio

Lenders will also consider a commercial loan borrower's debt yield ratio, which is their NOI divided by the total mortgage loan. A business with an NOI of $500,000 per year and a prospective loan amount of $7,000,000 will have a debt yield ratio of 0.0714, or 7.14%, meaning even if the property is foreclosed out the gate, the lender will receive a 7.14% return.

Michigan Commercial Loan Lenders

Commercial lenders, whether for small business, hard money or others can be difficult to find. Lender411 has a number of commercial lenders in its directory. Find one near you by filling out the form at the top of this page. 

Detroit, Grand Rapids, Warren, Sterling Heights, Lansing, Ann Arbor, and Flint are some of the largest and most significant cities in Michigan.  In any of these areas, you’ll find significant commercial real estate available for purchase or lease and plenty of lenders to help you finance your new business or business expansion.  Contact a local lender to explore your commercial loan options.

Michigan Small Business Loan Resources

The U.S. Small Business Administration, or SBA, offers affordable financing opportunities to help small businesses grow. The Michigan SBA District Office is located in Detroit. Generally, small business owners can finance their endeavors in two ways: equity or debt financing. 

Equity Financing

Small business owners can receive funds through equity financing without acquiring debt. In exchange for ownership share, another company raises funds for the recipient. The SBA recommends business owners take the equity financing route if their business has a high debt to equity ratio; that is, if they have borrowed for their business more than they have invested. 

Debt Financing 

For the opposite case - a business owner has a high equity to debt ratio - debt financing is a safe option, and recommended by the SBA. Debt financing is the borrowing of money from a lending institution or private lender, to be repaid over time, and usually with interest. The allowable loan amount, length of repayment term, and interest rate will vary depending on the lender. 

Help Through SBA

Your local SBA office may be able to offer aid through the Financial Assistance Program. Eligibility depends on several factors, although special considerations may be made for franchises, farms, medical facilities and more. Here are the basic criteria for eligible companies:

• Must be for-profit.
• Must be operating within the United States and territories. 
• Must have a reasonable owner equity for investment.
• Must seek other funding sources including personal assets before seeking SBA's help. 

To see if you qualify for special considerations, contact the Michigan SBA District Office: 313-226-6075.

About Michigan Business 

Michigan has the longest freshwater shoreline in the world.  It is bordered by four of the five Great Lakes.  It is the only state to consist entirely of two peninsulas.  The twentieth century resulted in a major transformation for Michigan.  The introduction of the automobile by Henry Ford marked the beginning of a new era in Michigan's history.  The car industry is the main industry for the city of Detroit, the most populous city in Michigan.

Michigan's economy leads in information technology and advanced manufacturing, but it is primarily known for its business in the auto industry, a sector that employs roughly 70,000 people.  Michigan is ranked in the top five in research and development expenditures in the United States.  The workforce in Michigan is well-educated and highly skilled, which makes it attractive to companies who wish to relocate to a new area with plentiful labor.

Anyone who is interested in doing business with the automobile industry should consider buying a commercial property in Michigan.  Lender411 can help you find the best commercial mortgage rates.

Lenders in: Michigan.