New Jersey Commercial Loans

Securing a commercial loan in New Jersey

A commercial loan in New Jersey can finance your new property purchase if you’re planning to use the property for business purposes and it is zoned as commercial.  Check with a local real estate expert to determine your property options.

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.

New Jersey 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. 

The most significant cities in the state of New Jersey for commercial real estate and business development are Newark, Jersey City, Paterson, Elizabeth, Edison, Woodbridge, and Hamilton.  These areas have all seen a large amount of development over the years and offer good environments in which to start or expand a business.  Talk to a local commercial loan specialist to determine your options for a real estate purchase.

New Jersey Small Business Loan Resources

The U.S. Small Business Administration, or SBA, offers affordable financing opportunities to help small businesses grow. The New Jersey SBA District Office is located in Newark. 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 New Jersey SBA District Office: 973-645-2434.

About New Jersey Business

New Jersey's economy is focused around the pharmaceutical industry.  Many of the giant pharmaceutical companies, such as Johnson and Johnson, Merck, and Pfizer, all have headquarters in New Jersey.  In addition, New Jersey is also home to many telecommunication firms, including Avaya, Verizon Wireless, and AT&T.

Shipping is also an important industry, since the Port Newark-Elizabeth Marine Terminal is one of the world's largest container ports.  Newark, the largest city in New Jersey, is undergoing a downtown redevelopment.  The area once referred to as The Coast and now referred to as Lincoln Park was deemed the Lincoln Park/Coast Cultural District by the city, and future additions include the development of a Museum of African American Music, an Arts Park, new housing, a restaurant, a nightclub, a music studio, and a dance studio.

Newark is the third-largest insurance center in United States.  Prudential Insurance and Mutual Benefit Companies originated in Newark.  The manufacturing sector, once the dominant industry for Newark, is now increasingly being replaced by the service sector.  Some of the attractions in Newark include the Cathedral of the Sacred Heart, one of the largest gothic cathedrals in America.  Newark Museum is another place of interest.

If you are interested in owning a commercial property in New Jersey, Lender411 can help you find the best commercial mortgage rates.

Lenders in: New Jersey.