Commercial Mortgage Brokers Handbook

Getting Started with Commercial Mortgages

Contact Winston Rowe and Associates


Learn about the industry

Educating yourself about commercial mortgage is crucial to your success as a broker. There are plenty of resources for brokers looking to get started in this field, from publications dedicated to the industry and company blogs, to webinars and in-person seminars aimed at helping brokers learn.

Getting to know the commercial mortgage industry will help you to earn credibility and develop great relationships with lenders, sources and borrowers, leading to more closed deals.

Connect with reliable lenders and referral sources

Another important piece of the puzzle for brokers new to the commercial industry is establishing partnerships with reliable lenders and referral sources. In order to increase your business and earn more, you’ll need a steady flow of deals from referral sources in your pipeline, as well as lenders with a consistent track record of closing these types of loans.

Get to know financial professionals in your area, as well as lenders you’d like to do business with, and develop an understanding of how everyone can benefit from your services.

Get to know your borrowers

To succeed in the commercial mortgage industry, you need to learn about the consumers who are most likely to utilize your services to find these loans. Generally, you’ll be working with small business owners who, for any number of reasons, cannot qualify for bank loans.

You need to get a sense of the challenges these borrowers face in order to get them to the right lender and get the deals done.

Once you’ve done the legwork of getting to know the industry, lenders, referral sources, and borrowers, you’ll have a much better sense of how to use your experience as a residential broker to close commercial mortgages.

With this knowledge, you can build connections and advertise your services in order to close more loans and earn more income.

How to Close a Commercial Mortgage Quickly

Many borrowers seeking commercial financing need it fast. Whether they need the funds to pay off a ballooning mortgage, take advantage of a great inventory deal or purchase a property quickly, it’s a broker’s job to get them the mortgage they need in the time frame they require.

Here’s what you need to do:

Find a lender with a track record of getting deals done quickly.

If your borrower doesn’t have time to wait for commercial financing, it’s important to seek out lenders who have a reputation for quick closings.

Your best bet in a scenario where your borrower needs funds fast is to connect with alternative commercial mortgage lenders. Because they aren’t constricted by the same regulations as banks and other traditional lenders, non- conforming lender can often close deals in a matter of weeks.

Determine what documents are needed for a submission.

Once you’ve found a lender who can get your borrower’s deal done fast, you need to ask them what is required to submit the commercial mortgage request.

Make sure to collect all necessary documentation and get it to your lender as quickly as possible.

Cooperate with your lender throughout the process.

In order for a deal to close fast, you and your lender need to be on the same page and willing to work together. Your lender is likely to have questions throughout the process and will probably need additional information after the original submission.

Get them the answers they need as promptly as possible so that your borrower can get their funds in the necessary time frame.

Commercial borrowers on a tight schedule often rely on brokers to help them obtain a mortgage, so it’s important to understand what you need to do to make this happen.

Selecting the right lender, understanding what is required to submit the deal and cooperating with your lender throughout the financing process are all necessary to get your borrowers they commercial mortgages they need. Following the above tips will help you close more loans fast and earn you more income.

Know What Makes a Commercial Mortgage Borrower Non-Bankable

Closing commercial mortgages is a quick and easy way for brokers to increase their income. However, in order to close these loans, you need to understand the borrower’s you’ll be working with and the challenges they’ve faced.

Being able to tell whether your borrower will qualify for bank financing or whether they’ll need an alternative product is important.

Here are a few clues that will let you know if a commercial mortgage borrower is non-bankable:

They’ve had credit issues in the past.

Because of stricter regulations, banks and other traditional lenders have a fairly narrow credit box, which disqualifies a lot of commercial borrowers right out of the gate.

If your borrower’s credit score reflects the fact that they’ve hit a few financial bumps in years past, you’ll need to work with a commercial lender that’s willing to consider your borrower’s full financial picture, and not just their credit score.

They have past-due taxes.

Banks won’t lend to borrowers who owe the IRS. If you’ve got a borrower looking to secure a mortgage to pay off back taxes, you’re going to need to direct them to a non-conforming lender.

They own a unique property.

Most traditional lenders have a number of commercial property types that they won’t lend on for any number of reasons. It’s in your best interest as a broker to develop relationships with lenders that will finance a variety of commercial properties.

They need a mortgage.

Borrowers seeking smaller commercial mortgages are likely to hit a wall with banks and many other commercial lenders, particularly if they need a loan size under $1 million.

That’s why brokers who are in the business of closing commercial mortgages should find at least one lender who specializes in commercial mortgages.

For brokers looking to earn more and increase their business, commercial mortgages are a great option.

Borrowers in need of this financing will often have had past credit or tax issues, a unique property type or a smaller loan for their property.

Once you know how to spot the borrowers who will need alternative financing, cultivating leads and getting loans closed will be much simpler.

Overcoming Common Objections in Commercial Mortgage Sales

If you’re a broker working with non-bankable borrowers, you’re going to hear some common objections when trying to sell a commercial mortgage.

Many will initially see the rate as too high, the LTV as too low, or the process as too costly.

However, if it’s the only way for them to secure the financing necessary to achieve their goals, you need to help them to understand that.

Here’s how you can overcome common objections and sell the deal: Manage your borrower’s expectations.

When you’re working with non-bankable borrowers, a good rule of thumb is to under-promise and over-deliver. The last thing you want is for your borrower to expect a bank rate and terms when it’s not something for which they qualify.

These expectations will make it harder for you to sell the deal and close the loan, so it’s crucial that you manage them and assure your borrower that you’ll find them the best commercial mortgage for which they can qualify.

Focus on positive aspects of the deal.

Many non-bankable commercial borrowers’ first objections involve their interest rate and the deal’s LTV. Generally, borrowers who need a non-conforming commercial mortgage are going to see higher rates and lower LTV’s, so you should make sure to accentuate the positive.

  • Is the loan going to close quickly?
  • Is your borrower getting a mortgage with fixed and fully-amortizing rate?
  • Did the lender get them a good deal on a commercial appraisal?
  • Focus on these benefits to keep your borrower on track.

Keep your borrower’s eyes on the prize.

One of the best ways to overcome your commercial borrower’s objections is to keep them focused on their goals.

If a mortgage from a non-conforming commercial lender is the only way your borrower can secure financing, you need to make sure they understand that it’s the best way to achieve their objective, whether that’s purchasing a new property, paying off credit card debt, or making improvements to their building.

Brokers are going to run into challenges when working with non-bankable borrowers who are seeking commercial financing.

In order to succeed, you need to know how to address your borrower’s objections in a way that sells them on the commercial mortgage they need.

Make sure to manage expectations early on, accentuate the positives and keep your borrower focused on what they want to achieve.

Taking these steps will make it easier to address your borrower’s concerns, sell the deal and close more commercial mortgages.

Consider These Factors When Working with Non-Bankable Borrowers

If you’re a broker working with non-bankable commercial borrowers, you’re going to want to focus on more than just the interest rate when selling the deal.

While the rate will certainly be an important factor in your borrower’s decision, you should also discuss other aspects of the deal that will impact your borrower when presenting them with their options.

Here are some things aside from the rate that your borrower should consider when seeking a commercial mortgage:

The terms the lender is offering:

As stated above, your borrower’s interest rate is important, but it’s not the only thing that should be considered.

Whether or not the mortgage is fully-amortizing, the prepayment penalty structure and lender fees are all factors that will impact your borrower, and you should review all of these components with your borrower.

Additionally, your broker fee is included in the terms of the deal, so consider lenders that will allow you to charge an appropriate commission for the amount of work you’re doing.

The way a lender services a mortgage:

There are many commercial mortgage lenders that package and sell their loans as commercial mortgage-backed securities.

If your borrower chooses one of these lenders, they end up making payments to a company they don’t know and may not trust. Working with full-service portfolio lenders eliminates this issue altogether.

They’ll work with your borrower through the life of the loan, which makes things simpler.

The flexibility of the lender:

Non-conforming commercial mortgage lenders are going to be more willing to work with borrowers who have faced financial challenges in the past.

This flexibility will allow you to find your borrowers the best mortgage solution and means that you’ll be able to close more loans more easily.

The turnaround time that they can expect:

If you’re working with a borrower who needs a mortgage fast, non-conforming lenders are your best bet.

These lenders aren’t constrained by the same regulations that banks deal with, so they can close a mortgage much more quickly.

Your borrower’s interest rate is an important factor in their decision, but it shouldn’t be the only thing they consider.

Make sure that you discuss the terms that potential lenders offer them, the way their mortgage will be serviced, and the lender’s flexibility and average turnaround time.

All of these factors have an impact on your borrower and will help to determine the type of commercial mortgage that will best meet their needs.

Developing Great Commercial Mortgage Referral Sources

One of a commercial mortgage broker’s most important resources is their referral network.

Without trusted financial professionals referring deals, it can be difficult for mortgage brokers to find borrowers.

So, in order to succeed you need to build and maintain a strong network of referral sources.

Here’s what you need to know to get started:

Know your lead sources.

In order to generate commercial mortgage leads, you need to know where to find them.

Reach out to accountants, lawyers, real estate agents and bankers in your area and let them know that you can get their non-bankable borrowers the financing they require.

These sources all have clients who can’t qualify for traditional financing, so selling your skills as a resource for them is a good strategy.

Make communication a priority.

Touching base with your growing referral network is a crucial part of keeping it strong. Contact your sources on a regular basis, but be careful not to become overbearing.

A call or an email every couple of weeks is a good starting point, and make sure to ask them what they want out of your partnership and how you can help them.

If they contact you, be sure to reply in a timely manner.

Be upfront about what you can offer.

In order to maintain strong relationships with your referral sources, being frank about the mortgages you can get their clients is very important.

For example, don’t promise bank rates and terms if you know a borrower won’t qualify.

Being open about the mortgages for which certain borrowers can qualify will make it easier to sell these deals, and will affirm your sources’ confidence in you as a trustworthy and competent business partner.

Understand your lenders’ programs.

Throughout the lending process, both borrowers and referral sources are likely to have some questions, so it’s important for brokers to understand all of their lenders’ programs.

If you can’t explain the products a lender can offer, referral sources are likely to take their business and their clients elsewhere.

A referral network is an important asset for any commercial mortgage broker.

You need to provide your sources with information that lets them know that you’re an experienced professional and that your services will benefit them and their clients.

Letting lead sources know that you’re a good resource for your clients and that your services are valuable is a great way to build and maintain your network and close more loans.

Simple Marketing Tips for Commercial Mortgage Brokers

When you’re just starting out, it’s important to take steps to market your services as a commercial mortgage broker.

Without the right approach, it will be difficult to drive leads and increase your business. In order to succeed, you’ll need to develop connections with potential borrowers and referral sources and keep them engaged.

Here are some basic tips for those of you who are interested in closing commercial mortgages:

Choose the right channels.

Between traditional and digital media, there are many ways that commercial mortgage brokers can reach out to borrowers and referral sources, and it’s important to select the best way to connect with them.

Do some research and figure out which social networks your audience is most likely to use and the best ways to communicate with them in order to drive leads.

Keep it simple.

When you’re new to marketing commercial mortgages, it can be easy to bite off more than you can chew and get overwhelmed.

For example, trying to update multiple social media channels, writing a company blog and creating video content can be difficult if you try to do it all at once.

Instead, choose a few things to start with, and add more marketing approaches as you grow more experienced.

Use your own voice.

One of the biggest mistakes you can make in marketing is foregoing your own unique voice in an effort to sound more knowledgeable.

Generally, this just makes you seem inauthentic. No matter what kind of marketing content you create, make sure to use your own words.

Utilize calls to action.

When marketing your services, you’ll want to drive potential clients and referral sources to take some sort of action.

Whether it’s clicking a link to your website or a social media profile, or calling your office to learn more, be sure to include a call to action in all of your marketing materials.

Don’t be “always selling.”

An immediate sales pitch tends to be jarring for most consumers who aren’t ready to take the plunge. Instead, provide potential borrowers with helpful information about commercial mortgages.

This shows them you’re a credible and experienced professional, and they’ll be more likely to contact you when they’re ready to hear a sales pitch.

For commercial mortgage beginners, a simple and effective marketing strategy will be a major component of your success.

Remember to keep your audience in mind when choosing marketing channels and strategies, and keep them engaged on all of the platforms you choose to use.

With the right approach, you’ll see more leads and more closed loans.

Building a Solid Commercial Mortgage Leads Network

Referral sources that provide commercial mortgage leads are crucial to any broker’s success in the industry.

If you’re new to the commercial mortgage niche, building a network that will keep your pipeline healthy might seem a bit daunting at first, but it’s simple.

You just need to know who the best sources will be, how to market your services to them and be ready to communicate consistently.

Here’s how you can build a great commercial mortgage leads network:

Know your sources.

First, brokers need to be aware of which financial services professionals are the best referral sources for commercial mortgages.

Bankers, CPAs, attorneys and realtors are generally the best people to ask about borrowers seeking commercial financing.

These professionals will know who cannot qualify for a bank loan and all have a vested interest in helping these individuals to find a funding source.

Tailor your marketing.

Once you’ve determined the professionals with whom you’ll be seeking to build partnerships, it’s time to develop a plan to market your services as a commercial mortgage broker.

You can use a variety of traditional and digital tools to advertise your business to referral sources, but the most important thing to remember is to sell your skills and explain how those skills will benefit your commercial mortgage sources.

Follow up regularly.

Make sure that you routinely connect with the professionals in your referral network.

Whether you send them an email, give them a call or meet them in person, it’s important to do so consistently. If a source contacts you first, be sure to return their call or reply to their email in a timely manner.

Again, remember to focus on how your services will benefit them and always ask how you can help them.

Developing a solid commercial mortgage leads network is the best way for brokers to achieve success.

If you’re willing to put the effort into building and maintaining a referral network, you can expect to close more commercial mortgages and earn more income.

Succeed as a Commercial Mortgage Broker through Networking

If you’re a mortgage broker new to the commercial mortgage industry, it can be difficult to know where to start your search for leads.

This is where networking comes into play. There are plenty of groups and events that can give you access to potential borrowers, as well as potential referral sources and lenders.

If you want to build your network, here are some great places to start: Join your local Chamber of Commerce.

A town or city’s Chamber of Commerce is a great place for commercial mortgage brokers seeking to expand their network of potential borrowers and referral sources.

Once you join, you’ll be able to interact with small business owners in your area, as well as financial professionals who work with clients who may be in need of financing for their commercial properties.

Participate in online industry forums.

The internet is one of the most important tools at your disposal, and every commercial mortgage broker should take advantage of the opportunities it presents.

Across many social platforms, there are plenty of groups for both small business owners, as well as professionals in the commercial mortgage industry. Join these groups and begin connecting with potential borrowers, as well as referral sources and commercial mortgage lenders.

Attend trade shows and conferences.

If you’ve got the time and resources, industry trade shows and conferences are worthwhile. These events allow you to build connections with lenders, referral sources and even other brokers.

Not only are these events great networking opportunities, there are often seminars with experienced commercial mortgage professionals, so you can learn more about how to succeed in the industry.

Develop a follow-up procedure.

No matter how you connect with borrowers, referral sources and lenders, you should establish how you’re going to follow up with each of them.

Whether it’s the occasional phone call or regular emails or a combination of both, be sure to remain consistent and always let them know how your services will benefit them.

All of these networking groups are great sources for commercial mortgage brokers. Joining local networking groups, like the Chamber of Commerce, establishes you as a commercial mortgage expert in your area, while internet forums and trade shows allow you to connect with people outside your area.

No matter which groups you join or events you attend, remember to go out of your way to help your new connections and to let them know how you can help them.

As long as you are an active member of the above groups and are willing to help your fellow group members succeed, you shouldn’t have much trouble finding new sources of commercial mortgage leads.

Building Connections in the Commercial Mortgage Business

Mortgage brokers looking to break into the commercial business should focus on developing relationships with borrowers and referral sources in order to drive leads.

If you want business, you must prove that you’re a competent and knowledgeable broker.

By concentrating on building connections with both borrowers and referral sources, you’ll build the sense of trust necessary to grow your business and close deals.

Here’s how you can get started:


Provide useful information.

Whether it’s through the blog on your company website, an email blast or a phone call, it’s important to give your borrower information that will help them to understand the type of commercial mortgage for which they qualify, and what they need to do to get it.

Give them industry insights, tips on making sure the lending process goes smoothly, and an overall sense of what they can expect.

Engage with them.

If a borrower calls you, emails you or connects with you through social media, talk to them and answer any questions they have. Make sure to answer them in a timely manner.

Keep it simple.

Avoid industry jargon wherever possible and give your borrower information about commercial mortgages in the most basic terms.

Referral Sources Contact them regularly.

To build a relationship with a referral source, it’s important to reach out to them on consistent basis.

Send emails and call regularly to check in with them and remind them that you can help clients in need of commercial financing.

Focus on problem-solving.

If you want financial professionals like CPAs, bankers or realtors to send you deals, you need to let them know how they benefit from your services.

Whether it’s preserving a relationship with a client or saving a sale, make sure you explain what’s in it for them if they refer their clients to you.

Your success in the commercial mortgage industry is all about developing connections to keep your pipeline full.

Whether you’re trying to build a relationship with a borrower or a referral source, it’s important to make sure they understand how your services will benefit them. If you can do that, you’ll be able to close more commercial mortgages and earn more income.

How to Turn Commercial Mortgage Leads into Closed Deals

We’ve discussed the best sources for commercial mortgage leads, as well as effective ways to communicate with potential borrowers in the past. But what do you do when you start receiving these leads?

How to you convert them into closings and commission checks? It might seem like a challenging task, especially if you’re working with a non-bankable borrower, but taking the steps below will help you to close commercial mortgages.

Ask questions.

Before you do anything else, you need to ask the borrowers some basic questions. You should find out how much money they need and what their plans for the money are, as well as some basic information about the property (type, size, location, etc.) and their credit history.

The more information you get from your borrowing before sending the scenario to a lender, the easier it will be to get the underwriting process started.

Submit the right paperwork.

The documentation needed for a mortgage request will vary from lender to lender, so it’s important to ask yours what they expect.

If you’re working with a non-bankable borrower and a non-conforming lender, you’ll likely need to submit a completed 1003, a credit report with trade lines and scores, a summary of the deal, and current photos of the property if you have them.

Make sure you ask your lender exactly what they’ll need to evaluate the deal and get that information to them.

Keep your borrower’s expectations in check.

One of the trickiest parts about getting a non-bankable borrower the commercial mortgage they need is to make sure they’re expectations align with the deal for which they’ll qualify.

You need to make sure that the borrower understands what kind of rate and terms they can expect so that selling the deal isn’t an uphill battle.

To succeed as a commercial mortgage brokers, you need to be able to convert your leads to closed deals.

Having all of the important information about your borrower and their situation ready, submitting all of the necessary documents and managing your borrower’s expectations will keep the process moving smoothly and allow for you to close loans fast and earn more income.

Understand the Commercial Mortgage Underwriting Process

Closing commercial mortgages is a simple way for brokers to earn more, and taking the time to learn about and understand the underwriting process will make it even simpler.

Once you know what goes into underwriting a commercial mortgage, you’ll be able to provide your lenders will all of the necessary information in order to close these loans as quickly and smoothly as possible.

Here are some of the various factors that affect the commercial mortgage underwriting process:

The application:

When submitting a commercial mortgage scenario, the more information you send to your lender, the better.

Most lenders will need your borrower’s application to include a completed 1003, a recent credit report with scores and trade lines and a summary of the deal to get started.

Without these items, the underwriting team will be unable to evaluate your borrower’s request, so make sure you have these documents.

Additional documentation:

Every lender has different requirements when it comes to the information, they’ll need to fully underwrite your borrower’s commercial mortgage.

Additional documentation might include tax returns to make sure your borrower has filed with the IRS, an agreement of sale if they’re looking to purchase a property or a rent roll if they rent out all or part of the building to tenants.

Talk to your lender to get a better understanding of all the documentation they’ll need to fully underwrite the deal and get them that information as quickly as possible.

Determining the rate:

Many factors go into determining the rate of your borrower’s commercial mortgage.

Their credit history, especially how well they’ve met past financial obligations, and their experience in their business are two of the most important factors used to determine the risk of lending to a borrower and thus their rate.

Make sure you understand this so you can explain if your borrower has any questions about their rate.

Determining the LTV:

Like the rate, there’s a lot that goes into determining the loan-to-value (LTV) ratio, which dictates the maximum loan amount a lender can offer your borrower.

The value of the property as determined by a commercial appraisal, the property type, where it’s located and how well the property debt services are all crucial factors in determining the loan amount for which your borrower can qualify.

Understanding the commercial mortgage underwriting process will help you to provide your lender with the information they need in a timely manner.

Getting to know how your lenders underwrite deals will help you to submit more complete applications, which will in turn lead to faster closing and additional income earned.

The Different Types of Interest and Terminology

There is much to be gained from having a basic understanding about interest rates, the different types of interest rates that are available, and how interest rates are calculated before you enter into any loan arrangement.

The more you know about interest rate formulas the better you’ll be positioned to make a more informed judgement when it comes to taking out a loan and, in doing so, ensure that you keep as much of your money in your pocket as possible.

What is ‘interest’?

In its simplest form, ‘interest’ is the cost of borrowing money, and it is normally expressed in terms of a percentage of the overall loan.

Not only will you have to pay back the original amount of money borrowed (the principal), but you’ll also have to pay back the cost of borrowing that money (the interest, plus any setting up fees etc.)

How much interest you have to pay on any given loan is subject to a number of different factors, depending on which lending institution you borrow the money from and the terms of the loan.

Fixed Rate Interest

Fixed rate interest is simply as the name suggests: a ‘fixed’ percentage of the loan must be paid back during the life of the loan.

For example (using dollars as our currency), a $1,000 loan with a fixed rate of interest of 5% per annum, means that if the loan amount were to be paid off in 12 months, the total amount the borrower would pay back would be $1050.

Fixed rate interest loans make it very easy to calculate the exact amount of money the borrower will have to pay back each month as the amount never changes.

Variable Rate Interest

Variable rate interest loans allow the lender to set the interest rate to whatever market conditions demand at any given time during the life of the loan.

The attraction of variable interest rate loans is that you can benefit from any future drop in market interest rates when your monthly repayments are reduced to reflect the lower interest rate.

However, the opposite also holds true. If the market decides it is time for interest rates to rise, so too will your repayments.

Mortgage loans, for example, are mostly set up with a variable interest rate, as it is virtually impossible to predict market conditions years ahead.

In many cases you can opt for a fixed rate for a few years but after this period the loan reverts to a variable rate (these deals vary from lender to lender).

Make sure you fully understand the consequences of a variable interest rate loan if you are considering taking one out. If interest rates rise dramatically you could find yourself in financial difficulties.


APR, or ‘Annual Percentage Rate’ is the total cost of the loan based on a yearly metric. In most cases this includes set up fees, administration costs and so on. In many countries, financial lenders must disclose the APR so that consumers have the chance to measure all lenders against a common metric.

Simple Interest

Interest rates are seldom calculated using the simple interest rate formula but rather are more likely to be calculated using the compound interest formula.

However, to explain, simple interest is calculated by multiplying the loan amount (e.g. $1000) by the interest rate (e.g. 5%) by the number of payment periods over the life of the loan (e.g. 24 months).

The thing to keep in mind here is that the interest rate may be expressed in terms of an annual rate, e.g. 5% per annum, whereas the payment periods might be expressed in months, e.g. 24 months. To ensure your calculation of simple interest is accurate, you need to make sure that both the interest rate and the payment periods are expressed in the same manner, say annually or monthly.

For example, using the figures above our $1000 loan would be at 5% per annum, and taken out over just 2 years (as opposed to 24 months). So here the calculation would be 1000 x 0.05 x 2 (loan x interest x term) = 100. So, the amount of simple interest that we would pay on this loan over the Two-year term would be $100.

Compound Interest

Compound interest relates to charges the borrower must pay not just on the principal amount borrowed, as in simple interest, but also on any interest outstanding at that point in time.

To illustrate the difference between compounding interest and simple interest, consider the following (very simplified) scenario of a $1000 loan taken out at 10% over 2 years (assuming no monthly payments are made on the loan):

Example of Simple vs Compound Interest Simple Interest:

First year: $1,000 x 1-year x 10% = $100 in interest Second year: $1,000 x 1-year x 10% = $100 in interest Total Interest: $200

Total of the principal amount plus interest = $1,200

In this scenario, the total amount of interest paid over the life of the loan would be $200 Compound Interest:

First year: $1,000 x 1-year x 10% = $100 in interest

Second year: $1,100 ($1000 principal plus $100 accrued interest) x 1-year x 10% = $110 in interest

Total Interest: $210

Total of the principal amount plus interest = $1,210

In this scenario, with interest compounded annually, the total amount of interest paid is $210

his is a very simplified example but it should be enough to highlight the workings of compound interest.

How to Analyze A Commercial Real Estate Deal

When you’re considering commercial property, you need to know as much as you can about the income and expenses before you even consider making an offer.

There are Four calculations that every real estate investor should utilize to determine a potential income property’s investment quality.

They are the ensuing:

  • Gross Rent Multiplier
  • Net Operating Income
  • Capitalization Rate
  • Debt Service Ratio

Gross Rent Multiplier (GRM):

The gross rent multiplier is a simple method by which you can estimate the market value of a commercial income property. The advantage is, this is very easy to calculate and the GRM can serve as an extremely useful precursor to a serious property analysis, before you decide to spend money on an appraisal.

To Calculate the GRM:

Gross Rent Multiplier = Market Value / Annual Gross Scheduled Income Transposing this equation:

Market Value = Gross Rent Multiplier X Annual Gross Scheduled Income Net Operating Income (NOI):

Net Operating Income is a property’s income after being reduced by vacancy and credit loss and all operating expenses. The NOI represents a property’s profitability before consideration of taxes, financing, or recovery of capital.

To Calculate the NOI:

Net Operating Income = Gross Operating Income Less Operating Expenses

Capitalization Rate (Cap Rate):

The capitalization rate is the rate at which you discount future income to determine its present value. The cap rate is used to express the relationship between a property’s value and its net operating income (NOI) for the coming year.

To Calculate the Capitalization Rate (Cap Rate): Capitalization Rate = Net Operating Income / Value Transpose this formula to solve for the ensuing variables. Value = Net Operating Income / Capitalization Rate

Net Operating Income = Value X Capitalization Rate Debt Service Ratio (DSR):

Debt service ratio is the ratio between the property’s net operating income (NOI) for the year and the annual debt service (ADS). Potential mortgage lenders look carefully at the DSR and its future projections, basically they want to know if the property can generate enough income to pay the mortgage in addition to cash reserves and a profit.

To calculate the Debt Service Ratio (DSR):

Debt Service = Annual Net Operating Income (NOI) / Annual Debt Service

How to Process A Commercial Real Estate Loan

Lenders typically begin the process by pre-qualifying potential borrowers first.

They do this by evaluating the individual’s financial, business, credit history and income. They also take other factors into account, such as existing debt and the purpose for the loan.

Once the pre-qualifying stage is complete, the borrower must then fill out a loan application form.

Applying for a commercial loan requires a significant amount of paper work and documentation.

If the purpose of the loan is to fund a new or existing business, for example, the petitioner may have to provide background information on their business or a business plan for the future that includes projected earnings and profit.

Other standard requirements may include personal tax returns dating back at least three years, liabilities and personal financial statements including all assets.

Once the application has been completed, the loan officer will review the applying individual’s credit history, available collateral and income.

Collateral for such loans typically includes real estate, stocks, bonds, and other guaranteed items of high value. Collateral is of course required to provide the lender with confidence that the borrower will be able to repay the loan even in the event that loan obligations fail to be met.

Once the paperwork has been considered and approved, the loan application is forwarded to a loan underwriter or loan committee.

It is their sole purpose to approve or deny the loan based on the information provided.

Shortly thereafter, a processor presents the loan applicant with a letter of intent or term sheet which must be approved and signed.

This document includes all pertinent information regarding the terms of the loan, including the total amount to be financed, the type of collateral applied to the loan, and the terms of repayment.

The primary purpose of this document is to ensure that all parties involved have in fact agreed to the same terms and conditions.

The decision to approve or reject the loan usually takes about five days, during which the applicant may be asked to provide additional documentation to the loan committee should they require it.

Once the letter of intent has been submitted, the lender may also ask for a check intended to serve as a deposit or to cover the costs of generating certain reports necessary for the loan approving process.

The complete loan application package is then resubmitted to the loan committee for final approval. If and when the loan is approved, the applicant will have to sign the finalized loan documents.

If the applicant has a closing agent (such as an attorney, escrow representative or title company), all closing documents will be sent to them. It is then up to the agent to file and complete all the remaining paperwork (i.e. deed transfers and mortgages, title insurance, exchanging funds, etc.).

Closing generally takes place within days of final approval, at which time the lender provides the loan in the form of a draft, electronic wire transfer to the applicant’s bank account, or cashier’s check.

Commercial Mortgage Supporting Document List

The ensuing is a list of supporting documents that are required to perform the initial due diligence review your proposed purchase commercial loan request.

Completed Transaction Summary Questionnaire from Winston Rowe & Associates

Business Financial Supporting Documents:

  • Name and Address of Corporate Bank
  • All Business’s Profit & Loss Statements for 3 Years List of Business’s Owned

Property Supporting Documents:

  • Subject Property Income & Expense Statement YTD for the last 3 Years Subject Property Profit and Loss
  • Schedule of Tenant Leases Copies of Tenant Leases
  • Verification of Land or Building Purchase with Mortgage Balance Most Recent Survey
  • Schedule of Units with Square Foot Per Unit Excel Format Schedule of Improvements to be made with Cost Breakdown
  • Exterior Photos of Subject Property Photos of Parking Lot, Street view Interior Photos of Subject Property
  • Most Recent Appraisal
  • Copy of the First Page of the Insurance Binder List of All Litigation Past and Present Purchase agreement
  • Current Mortgage Information, Contacts and Rate and Term Guarantor Supporting Documents:
  • 4506 (T) Executed
  • Three Bureau Credit Report
  • Valid Government Issued Photo ID Front and Back Copy
  • Most Recent Business and Personal Bank Statement YTD for
  • 3 Months Personal Financial Statement for all Guarantors YTD for 12 Months Business and Personal Federal and State Tax Returns for 3 Years Articles of Incorporation

There will always be additional documents required by a lender or bank to complete the formal underwriting process.

What Every Broker Should Know About Commercial Appraisals

A major part of determining the size of a commercial mortgage is understanding the value of the property that your borrower plans to pledge as collateral.

The best way to determine this value is through an appraisal report. Because they’re such crucial tools in the lending process, it’s important for brokers to understand a few things about these reports.

Here’s what you should know:

A commercial appraisal is more expensive.

The average appraisal report for a commercial property generally costs about $1,500-$3,000. Depending on the collateral, the location and the availability of comparisons, it can cost more or less than this, but it’s definitely going to be more expensive than a residential appraisal. Brokers should be aware of the cost and should discuss it with their borrowers before submitting an application to a commercial mortgage lender.

The reports are more complex.

Part of the additional cost is the complexity of commercial appraisal reports. While a residential property generally requires a simple form appraisal, many lenders require more in-depth reports complete with sales and income approaches included in order to fund mortgage requests for commercial property owners.

The complexity increases if your borrower owns a unique property or if the collateral is located in a rural area where comparisons are harder to find.

Lenders usually order the appraisals.

Because commercial appraisals are more involved, lenders generally have trusted approved appraisers from whom they order reports. It’s important to check in with your lender and make sure that you’re on the same page about who’s ordering the appraisal. Otherwise, your borrower could end up paying for two.

In order to make the lending process as seamless as possible, it’s important for brokers to understand the basics about appraisal reports and to prepare their borrowers for what to expect.

These reports are more expensive and complex, and are incredibly important to the lender when determining the final LTV of a loan. Be sure to discuss the proper procedure with your lender when it comes to commercial appraisals, and be willing to work with them should any issues arise.

Submission Process and Procedure for Winston Rowe & Associates

A completed Transaction Summary Questionnaire must be initialed and signed by the prospective client to be considered as a client of Winston Rowe & Associates.

Your commercial real estate mortgage request will never fund if you do not adhere to our and the capital sources policies, procedures or are less than truth full during the submission processes(s).

Winston Rowe & Associates cannot make a guarantee or promise of any kind that your proposed request for financing will be successful, because the final determination is made by the capital source(s).

Winston Rowe & Associates utilizes a best efforts approach to perform the initial due diligence review, our work product pursuant to the proposed general terms and conditions as detailed in the Winston Rowe & Associates executed Letter of Interest.

Step 1 Transaction Summary:

Upon receipt of the completed and signed transaction summary questionnaire, the material facts as presented by the client will be reviewed by Winston Rowe & Associates.

Step 2 Processing & Initial Due Diligence Review:

Winston Rowe & Associates will schedule a call with the client to review and verify the material facts as presented by the prospective client and then provide to the prospective client a list of supporting documentation required to begin the initial due diligence review (our work product).

After an initial due diligence review of said required supporting documents, then based on the Transaction Summary Questionnaire and information provided in the conference call, Winston Rowe & Associates will issue the client a LOI (Letter of Interest)

This Letter of Interest is not a commitment or promise to fund your proposed financing request.

Winston Rowe & Associates does not guarantee that the loan terms or interest rates offered are the lowest interest rates or best loan terms in the market that are made available by its capital source(s) from time to time.

When all of the required supporting documentation has been submitted to Winston Rowe & Associates, they will begin the initial due diligence review to prepare (package) the proposed financing request for the capital sources(s) underwriting at their sole discretion.

Please note; the proposed financing request will not be submitted to the capital source until all of the required documentation has been provided.

Step 3 Submissions to The Capital Source(s) For Underwriting:

Once Winston Rowe & Associates completes the initial due diligence review of the proposed transaction it will be formally submitted at Winston Rowe & Associates sole discretion to the pre-determined capital source(s) for underwriting and potential funding.

Winston Rowe & Associates is not a lender and does not make loans or credit decisions in connections with loans.

The capital source(s) make the determination pursuant to all funding requests. Step 4 Commitment Documents, Reports & Loan Closing:

Upon completion of underwriting the pre-determined capital sources will issue general terms and conditions defined within a Letter of Interest or conditional commitment documents.

The client will be placed in direct contact with the capital source to finalize the transaction. Once the proposed transaction has completed underwriting; property reports are then ordered.

These reports are paid for, prior to funding by the client which include; appraisals, surveys and studies.

Report types vary according to real estate type.

Winston Rowe & Associates does not order or accept fees for any reports, surveys or studies. The capital source(s) order reports, surveys and studies pursuant to their policies.

When the necessary property reports are completed, the title work is ordered and a closing is scheduled.

Commercial Real Estate Financing Glossary of Terms

1031 Exchange

An exchange of business or investment property for another property of equal or lesser value for which Internal Revenue Service (IRS) Code 1031 allows capital-gains deferral. To satisfy the IRS regulations, a replacement property must be identified within 45 days of the sale of the original property, and closing must occur within 180 days. Third-party 1031-exchange intermediaries are often employed to monitor timing, prepare documentation and hold funds between sale and purchase.

4506, 4506-T or 8821

Consent forms that grant the lender rights to obtain and verify borrowers’ tax-return information from the Internal Revenue Service (IRS). The forms are used for the following purposes:

Form 4506, “Request for Copy of Tax Return,” is used to obtain a complete copy of the tax returns submitted to the IRS.

Form 4506-T, “Request for Transcript,” is used to obtain a line-item summary of the tax returns submitted to the IRS, as well as 1099 and W-2 information.

Form 8821, “Tax Information Authorization,” is used to gain information about previous taxation issues. It is not used to obtain tax returns or transcripts.


A mortgage lender’s right to demand immediate payment from a borrower who defaults on a loan.

Acquisition and development loan

A loan provided for the purpose of developing raw land. Additional advance

Supplemental loans given to borrowers while they are completing their mortgage transactions. These advances are often paid as a percentage of the mortgage.


A process by which borrowers make monthly principal payments to gradually reduce their mortgage debt.

American Society of Testing Materials (ASTM)

Organization that defines environmental regulations used to set the benchmark for standardized environmental reporting. Commercial real estate developers can satisfy Comprehensive Environmental Response, Compensation and Liability Act requirements using ASTM standards for environmental site assessments.

Annual percentage rate (APR)

The annual cost associated with borrowed funds expressed as a percentage. Appraisal

A dated, written document in which the property’s value has been determined by a qualified real estate expert. From a lending perspective, the appraised value is considered valid for 120 days.


The increase in value of an asset. Real estate may appreciate due to a number of factors, including inflation-rate increases, limited supply of inventory, highly desired location or the local economy’s growth rate.

Balloon payment

An oversized payment due at the end of a mortgage, commercial loan or other amortized loan. Because the entire loan amount is not amortized over the life of the loan, the remaining balance is due as a final repayment to the lender. Balloon payments are often prepackaged into what are called “two-step mortgages.” In this type of mortgage, the balloon payment is rolled into a new or continuing amortized mortgage at the prevailing market rates. Balloon payments can occur within fixed-rate or adjustable-rate mortgages (ARMs).

Blanket loan

A mortgage loan with multiple properties as collateral. Bond

Long-term debt sold to investors. Mortgage loans are often bundled together and sold as mortgage-backed bonds. Proceeds from the sale of the bonds generate new revenue streams for banks, allowing them to continue issuing new loans.

Bridge loan

A short-term loan given to a borrower until permanent financing becomes available. Building permit

A government-issued document that gives a builder authority to construct or modify a structure. Business credit report

A compilation of a commercial entity’s credit history and risk. Capital gain

The difference between an asset’s appreciation and the price paid when it was acquired.

Capital-gains tax

Tax on profits received from the sale of capital assets. Cash-out refinance

Refinancing a current mortgage at a higher loan amount and taking the difference in cash. Certificate of occupancy (C of O)

A key piece of documentation in commercial real estate that is issued when building construction is complete. The C of O indicates that no other work is required and that all inspection requirements have been satisfied. In commercial finance, when the borrower receives the C of O, the lender will close a temporary bridge loan and, once the final project costs are calculated, issue a permanent loan.

Closing costs

Fees associated with the acquisition of real estate. These include, but are not limited to, lender fees, credit checks, title insurance, and survey and recording fees.

Commercial mortgage-backed securities (CMBS)

A type of mortgage-backed security that is secured by loans on commercial property. A CMBS can provide liquidity to real estate investors and to commercial lenders.


Used to determine the market value of a property, based on comparisons of like-properties sold within a specific geographical area and time period. Also known as comps.

Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) of 1980

A federal law designed to clean up and establish liability for hazardous waste sites, also known as Superfund sites.

Construction completion loan

A loan provided to cover project cost overruns. Typically, a bank will lend a set amount for construction projects, and borrowers are required to pay for or finance any additional costs. If borrowers experience a cash shortfall, construction completion loans cover the difference.

Because the borrower is typically in a critical situation, interest rates on these loans are generally higher than for conventional loans.

Construction loan

A loan issued for the construction or major renovation of a property. As work is completed during the various stages of construction, money is paid out to borrowers incrementally in the form of draws.

Construction output price index (COPI)

A measure of the cost of work being executed in a given period. The index was originally designed to measure the inflation-adjusted value of construction output, but is also used in a range of other statutory and contractual applications.

Contingency fund

Money reserved as a buffer to cover cost overruns or unexpected expenses in a project. In loan underwriting, the fund is often tied to and calculated as a percentage of estimated construction costs.

Correspondent lender

A mortgage broker/banker who originates, funds and sells mortgage loans through a relationship with a larger lender, in accord with the larger lender’s underwriting guidelines and program offerings.

Credit report (Personal)

A record of consumers’ credit activities. These activities are tracked by three credit bureaus: Equifax, Experian and TransUnion. According to the Federal Reserve Bank of San Francisco, four main categories are documented in personal credit reports:

Identifying information: Full name, any known aliases, current and previous addresses, Social Security number, year of birth, current and past employers and, if applicable, similar information about spouses.

Credit information: Accounts held with banks, retailers, credit card issuers, utility companies and other lenders. Listed by type of loan, such as mortgage, student loan, revolving credit or installment loan; the date the account was opened; the credit limit or loan amount; any co-signers of the loan; and consumers’ payment pattern over the past two years.

Public-records information: State and county court records on bankruptcy, tax liens or monetary judgments. Some consumer-reporting agencies also list non-monetary judgments.

Recent inquiries: The names of those who have obtained copies of the consumer’s credit report within the previous two years.

Credit score

A numerical valuation based on personal credit reports that is used to evaluate a borrower’s credit risk. The range on credit scores is 300 to 850. Also referred to as a FICO score.

Debt-service-coverage ratio (DSCR)

A calculation used in commercial real estate underwriting to determine whether income from a property can service the debt associated with the property. To calculate debt service coverage, divide the net operating income by total debt service for the subject property. A DSCR greater than 1 indicates a positive cash flow, and a DSCR less than 1 indicates negative cash flow.

Ideally, lenders look for a DSCR of 1.2 or higher. Debt-to-income ratio (DTI)

A calculation based on total monthly debt payments divided by total monthly income. This is a percentage-based result, and measures the level of lending risk.

Deed of trust

A document created under state law that documents a pledge of real property to secure a loan. The deed of trust involves the trustor (borrower), the beneficiary (lender) and the trustee. The trustee is a third party who holds title and is empowered to foreclose on the property should the trustor default.


The failure of a debtor to meet a legal obligation of a loan, i.e. the failure to make a payment, or payments, on a mortgage loan.

Deferred interest

Interest that accrues, but remains unpaid. For instance, on some adjustable-rate mortgages for which borrowers choose a fixed monthly payment, the monthly payment may not satisfy the entire monthly expense as the interest rate changes. The outstanding unpaid interest is added to the loan amount.

Down payment

A borrower’s initial contribution toward a property purchase. To obtain a loan, most lending programs require some form of down payment, based on a percentage of the total purchase price.

Draws on demand

Taking funds from a construction budget to pay suppliers and contractors on demand. EB-5 Immigrant Investor Program

A program created by federal law, under which immigrants to the U.S. may be granted visas by investing minimum amounts ranging from $500,000 to $1 million in new commercial enterprises. Investments must meet location and job-creation criteria.

Environmental risk

The potential loss of value because of the presence of hazardous materials on a property. Such materials may include asbestos, polychlorinated biphenyls, radon or leaking underground storage tanks.


The difference between a property’s market value and the debt owed on the property. If a borrower owes $700,000 on a loan for a property valued at $1 million, the borrower has

$300,000 in equity in the property. Can also be expressed in negative terms.

The value of shares issued in a commercial real estate enterprise, or other company. Equity line of credit

A credit product in which a property owner borrows against the owner’s equity in a commercial property, as needed. Typically, there is a fixed period of time that a borrower can draw on the loan, after which it is converted to a term loan.

Escrow account

A trust account in which cash or other assets are held to pay expenses pending satisfaction of contractual obligations.

Financial statements

Historical financial reports of assets, liabilities, capital, income and expenses. Fixtures

Items that are attached to a property. These may include heating and air-conditioning systems, wall-mounted shelves and security systems.

Flagged hotel

A hotel belonging to a nationwide corporation or franchise. Flood zone

A geographical area designated by the federal government as subject to potential flood damage. Lenders must complete a Federal Emergency Management Agency (FEMA) flood-hazard- determination form prior to funding a property to determine whether a property is located in a potential flood zone and required to carry flood insurance. The 100-year floodplain — or areas where floods have a 1-percent chance of equaling or exceeding the elevation each year — is the basis for most FEMA determinations.

Floating rate

An interest rate that is allowed to move up and down with the rest of the market or with an index. This contrasts with a fixed interest rate, in which the interest charged on a debt obligation stays constant for the duration of the agreement. A floating interest rate is also referred to as a variable interest rate.

Foreign national

An individual residing in a country, but who has not been granted the legal right to permanent residency.


A business method in which independent owners operate under a right or license agreement to distribute goods or services.

Free and clear

Ownership of an asset without debt obligations. Garden apartment

In real estate finance, this usually refers to a multifamily development or project in which tenants have access to a shared lawn area.

Good-faith deposit

A monetary deposit made by a purchaser to indicate genuine interest in the purchase of a property.

Graduated-payment mortgage

A loan designed to start with smaller initial payments. Payments then increase at a predetermined rate.

Hard-money loans

A type of financing that typically provides funds for hard-to-fund projects or short-term purposes. Hard-money lenders generally give more consideration to the value of the property, or collateral, than to credit history. Loan-to-value ratios are usually less than 75 percent, and credit scores, if required, can be less than 500. Also referred to as equity lending.

Improved land

A parcel of land that has been developed for use. Improvements may include electrical, water, telephone or sewer lines; grading, landscaping, roads or gutters; and construction of permanent structures.

Individual Taxpayer Identification Number (ITIN)

An alternative to a Social Security number, which is used for federal and state taxation purposes. ITINs are assigned to those who do not qualify for Social Security numbers, such as foreign nationals working in the U.S.

Installment loan

A loan that requires regular, fixed payments over a specific period of time, such as car and student loans.


Assets that lack physical substance, such as goodwill, patents and trademarks. Interest

The price paid for borrowing money, calculated on an annual percentage basis. Interim financing

A short-term loan issued prior to permanent financing. Interim statements

Financial statements issued for periods of less than one year. Investment property

Real estate owned for income or capital appreciation rather than the owner’s personal use. Joint tenancy

An ownership structure between two or more people. Under joint-tenancy law, if one of the owners dies, the surviving owners are granted the decedent’s interest.

Leasehold improvements

The cost of improvements made on leased property, often paid by the tenant. Lien

A legal claim against an asset for an outstanding debt. If the asset is sold, all liens against the asset must be cleared before a transfer of title can occur.

Loan-to-cost ratio (LTC)

A percentage calculated by dividing the loan balance of a construction project to the cost of building the project.

Loan-to-value ratio (LTV)

A percentage calculated by dividing the loan balance of a property by its market value. The higher the LTV, the greater risk for the lender. Consequently, loans with more than 80-percent LTV have higher interest rates and typically require private mortgage insurance.

Market value

Determined by a property appraisal, an estimate of what a buyer would expect to pay for an asset under current market conditions.


The time at which a loan’s principal balance must be paid. Mezzanine financing

A loan that comes with a warrant that lets the lender convert to equity-interest in a property if the loan is not repaid in full.

Mini-perm loan

A commercial loan with a balloon payment and a three- to five-year term. Mini-perms are obtained for projects without an established operating history. The loans provide funding while projects are being established, with the assumption that they will be converted into permanent loans once the property is in use.

Mixed-use properties

Properties built and/or zoned for commercial and residential use. They typically feature ground- level commercial space with residential apartments or condominiums above.


A loan that is paid over time and secured by real estate. The lender retains the legal right to acquire and sell the property if there is a breach in the loan contract, such as a failure to pay.

Mortgage broker

An individual who sources mortgage loans and serves as an intermediary between borrowers and lenders. Brokers charge a fee for their services, which is typically based on a percentage of the loan amount.


Properties that are constructed for multiple-family use, such as apartments or duplexes. If the building is sold as a complete unit, condominiums can also be considered multifamily properties. However, condominiums typically are sold as individual units, and not considered multifamily properties.

Net-net lease

A lease in which, in addition to the rent, the tenant pays for property taxes and insurance. Commercial tenants are also might also be required to pay maintenance costs on a property (See Triple-net lease).

Non-owner-occupied property

Income-producing property in which the owner does not live or operate a business. Many lenders consider non-owner-occupied properties to be higher-risk, and as a result, mortgages for these properties may carry a higher interest rate.

Nonrecourse loan

A loan that is secured by collateral (e.g., a home or building), but for which the borrower is not held personally liable. If the lender seizes the property and the sale does not cover the loan, the borrower is not responsible for the shortfall. Nonrecourse loans typically have a lower loan to value ratio (80 percent to 90 percent) to increase the lender’s level of protection should the loan go into default.

Nonresident aliens

Immigration status granted to foreign nationals living and working in the United States on nonimmigrant visas. The most common types of visas are tied to a sponsoring institution or employer (e.g., EB-1, F-1, H-1B, J-1, etc.). For tax purposes, nonresident aliens are taxed on U.S.-based trade, business or employment income.

Office condos

Office units that business owners can buy rather than lease. On-time completion bonus

A bonus given to a contractor for finishing the construction of a home or commercial project within an allotted time frame.


A property-owner who assumes responsibility for the overall job of building a property, rather than using a general contractor.

Owner-occupied businesses

Businesses that operate out of the building they own. Par pricing

An interest rate used as the reference point for which a mortgage lender will neither pay a rebate (yield spread premium or negative points) or require discount points for a mortgage.

Passive real estate

Income-producing properties that do not require active involvement in their day-to-day operations, such as storage facilities and carwashes.

Permanent resident aliens

Foreigners who have been granted permanent residence in the United States and have been issued a permanent-resident card (aka, green card) but who do not have U.S. citizenship. For tax purposes, permanent residents are taxed on their global income.


Personal Financial Statement Planned urban development (PUD)

A type of community zoning classification that is planned and developed within a city, municipality and/or state that contains both residential and non-residential buildings (such as shopping centers). Open land, such as for parks, is also often included PUD zones.


Preferred lending partner Power of attorney

The legal right to make decisions on another’s behalf. Prepayment

Early repayment of a loan. Prepayment penalty

A fee charged to borrowers for early repayment of their loan, to compensate the lender for lost interest payments.


The original amount of money borrowed on a loan. Principal reductions with re-amortization

Reducing the loan’s principal balance and applying the existing interest rate to the remaining principal over the life of the original loan term.

Private money

Typically, short-term, high-interest-rate loans by private individuals or small companies. Also known as hard money.

Pro forma

Financial adjustments made off the balance sheet, reflecting the impact of recent or anticipated changes.


Financial statements that predict future income, cash flow and balance sheets. They typically span multiple periods of time.

Quit-claim deed

A legal term indicating one party has terminated its interest in the property. Raw land

Land that remains unused and in its natural state. Raw land is historically free from any improvements such as grading, construction or subdividing.


Process by which a loan is paid off with proceeds received from a new loan. The same property is used as collateral for the new loan. Loans may be refinanced for several reasons, including more favorable terms, change of lenders, access to equity, change of guarantors, etc.

Rent roll

A detailed list of tenants on a property, outlining the square footage and area leased, amount paid in rent, lease terms, etc.

Rent step-up

A rental agreement in which the monthly rent payment increases over a fixed period, or for the life of the lease.

Right of rescission

Borrowers’ ability to back out of a loan, usually established by law as a specific time period. Small Business Administration (SBA) loans

The federal Small Business Administration guarantees bank loans that are structured to meet SBA requirements. The 7(a) program is the most popular for starting, acquiring and expanding businesses. The 504 program supports long-term, fixed-rate mortgages for fixed assets – usually buildings, land and machinery. The loans are intended to promote economic growth, and are offered at terms that are often more favorable that conventional bank financing.

Securitized mortgage

The process through which an issuer creates a financial instrument by combining other financial assets and then marketing different tiers of the repackaged instruments to investors. The process can encompass any type of financial asset and promotes liquidity in the marketplace.

Seller carry-back

An agreement in which the seller provides financing for all or part of the purchase price of a property.

Special-use/single-purpose property

An income-producing property designed for a specific purpose. In most cases, a significant expense would be required to convert this type of property to a general-purpose facility.

Examples include restaurants, car washes and hotels. Subdivision construction loans

Loans for the construction of single-family and multifamily subdivisions, typically ranging from two to 30 homes. Financing is provided for all phases, including land acquisition, development and construction.

Subordinate financing

A secondary or “junior” lien on a property. If there is a foreclosure, the primary-lien holder is paid first. For lenders, taking a subordinate position involves more risk, as well as the potential that they won’t get paid in a foreclosure. Consequently, the interest rate is usually higher.

Sweat equity

Providing labor, rather than cash, toward the completion of a project. Often this term applies to a property under construction for which the owners do some of the work. This is a cost-saving technique with a fair market value. Lenders accept sweat equity on a case-by-case basis, which varies by lender.

Tenants in common (TIC)

Two or more individuals holding title on a property. Title

Evidence of legal ownership. With real estate, it establishes the owner’s right to occupy and eventually sell the property without a third-party interest.

Title insurance

Insurance policy that protects borrowers and lenders against title defects. The fee for this is typically included in real estate closing costs and paid to a title company or attorney who provides due diligence to ensure the property is marketable.

Treasury bill (T-bill)

A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations of $1,000 up to a maximum purchase of $5 million and commonly have maturities of one month (four weeks), three months (13 weeks) or six months (26 weeks). T-bills are issued through a competitive bidding process at a discount from par, which means that rather than paying fixed interest payments like conventional bonds, they provide a return to the bondholder through appreciation.

Triple-net lease (NNN)

A lease in which, in addition to rent, the tenant is required to pay for property taxes, insurance and maintenance. Commercial leases might also require tax and insurance payments, but not the cost of maintenance (See Net-net lease).


A legal form that a creditor files to give notice that it has an interest in the personal property and/or income related to the collateral backing a commercial mortgage.


Process used by lenders to determine borrower eligibility and ability to repay a loan. A number of factors are evaluated, including personal credit history, financial statements, employment history and salary. In commercial real estate finance, these factors also include business financial records, history and projections.

USDA Business and Industry Loan Program (USDA B&I)

United States Department of Agriculture loan-guarantees made to rural businesses to improve a community’s economic condition.

Warehouse line

A line of credit extended to mortgage bankers to allow them to provide mortgage loans. With the line, they often can make faster lending decisions and fund loans faster than through typical bank approval process.