Restaurant Loans
Restaurant loans are a dynamic area
of the commercial mortgage industry as banks appetite for this building types varies widely. The special use nature of the properties themselves, as well as the relatively high rate of bankruptcy/foreclosures makes lenders conservative. Another issue is the high level of seller financing within the restaurant industry which further complicates and creates additional risk for banks.
Restaurant Loans
However, owners looking for restaurant loans are often pleased to learn of the new programs available to them. 30 year amortization as well as stated income loans are a few examples. Below is a breif description of the underwriting guidelines for restaurant loans.
Restaurant Loans LTV - CLTV
Loan to value restrictions on restaurant financing are typically capped at 60% on both rate and term or cash out refinances. However, there are lenders that will allow higher leverage. On purchases borrowers can expect 85% financing or as high as 90% with a blend of seller held financing (sits in second lien position) and conventional loans. For example, if the first lien position existing convention loan is at 70% loan to value and the seller held is at 20% loan to value the purchaser would only have to put down 10%.
Restaurant Financing - DSCR
Debt Service Coverage Ratio restrictions are typically conservative at 1.3 to for this building type. Meaning that for every $1.30 of net income (income after all expenses, taxes, insurance, repairs, etc) the property produces, the mortgage payment will not be allowed to exceed $1.00. Said in another way, after all expenses and the mortgage have been paid, the owner will need to net $.30 to qualify.
Due to the cash nature of this business, commercial stated income loans, (where borrower does not have to provide tax returns) can be a solid option for owners that do not show enough net income to qualify for traditional loans. With this type of loan the DSCR discussed above is not relevant.The SBA 7a loan program is another great option and will allow DSCR as low as 1.1 on restaurant loans.
Restaurant Loans - Property Analysis
Great caution will typically be used as market value and market rent is evaluated and compared to the subject property. Age, appearance, location, accessibility, and local market conditions, as well as other factors are considered.
Restaurant Financing - Credit Worthines
The personal credit worthiness of the borrower will be scrutinized. 680 credit score is normally the minimum for the best finance options. Exceptions can be made (on a limited basis) as some conventional lenders will consider scores as low as 640. Some SBA lenders will go down to 620. 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 non franchise and franchise restaurant loans in the market today. Get your restaurant loans handled and closed. Start by filling out our mini commercial loan application now.
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