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"FLASH" of Lightning )
Financial Brokers for Business & Commercial Loans January 2007
In this issue
  • Investment Real Estate - Where should I put my money?
  • Key Commercial Loan Rates
  • SBA Lenders they are not all the SAME.
  • Ask the Broker?
  • Greetings Harlan,

    Welcome to "Flash" of Lightning, our monthly newsletter.

    We've written this brief newsletter to keep you, our friend and client abreast of the latest information regarding all areas of financing. We will share with you relevant articles that pertain to financing either commercial projects or business acquisitions.

    Harlan A. Friedman, President & Broker

    Investment Real Estate - Where should I put my money?

    As promised for the next series of newsletters we will be examining each individual investment type of real estate; from what it is, to lenders underwriting requirements to getting your loan approved.

    The key to any piece of commercial real estate as you know from my previous articles is cash flow. If there is no positive cash flow without a significant down payment it is not a "good" investment today. You may elect to hold an investment and hope for appreciation upon a future sale, but that is not going to give you cash today.

    The investment types that will be covered in this series of articles are all known as "cash cows". They typically return an investor a consistent cash flow and therefore a good cash on cash return. The next investment, office buildings are almost a hybrid of two investments that will be discussed in coming articles; multi-family and retail centers.

    The reason I treat these as a hybrid is that with a multi-family development they tend to be larger and its similar to a retail center in that the leases are longer and the tenant headaches are greatly minimized. In addition the cash generated is based on the rental income that is charged for these types of premises, and commercial tenants generally speaking pay greater rents, similar to the rents that are collected for a retail center.

    Many Real Estate Developers as well as the loan underwriters categorize commercial office buildings by their appearance and location.

    In addition they can be further categorized by their construction type. For example you can construct commercial buildings as low-rise, mid-rise and high- rise buildings.


    Building and Owners Association or BOMA classifies building types into three classes, A, B and C.

    Class A Properties

    "Defined by BOMA as the most prestigious buildings competing for premier office users with above average rental rates for the area along with high- quality standard finishes, state of the art systems, exceptional accessibility and a definite market presence."

    Class B Properties

    "Defined by BOMA as buildings competing for a wide range of users with rents in the average range for the area and the mechanical systems are adequate, but the building does not compete with Class A at the same price."

    Class C Properties

    "Defined by BOMA as buildings competing for tenants requiring functional space at rents below the average for the area."

    After the commercial office buildings are divided into classes they are further divided by location, either a downtown location or a suburban location.

    Developers will build a different product based on location of the acreage they are planning to develop.

    Density is the reason for the distinction...

    When a developer is limited to the available acreage and resulting construction footprint, the square footage of the building foundation, they can therefore only build a certain amount of building space in the limited footprint.

    The answer is to go up. By building mid-rise and high-rise commercial office buildings downtown they can provide more units per square footage, thus building at a higher density.

    Maximum. Loan To Value - 80 %
    Maximum. Amortization – 25 to 30 years
    Minimum DSCR - 1.25x
    Minimum Vacancy Reserve – the greater of actual or market vacancy; typically 7% to 10%
    Cap Rate – use market-driven capitalization rate; typically 8% to 11%

    Key Commercial Loan Rates

    Key Commercial Loan Indexes

    Fed Prime Rate 8.250%

    10-Year CMT 4.70%

    30-Year CMT 4.81%

    USD 6 MOS LIBOR 5.367%

    As of December 29, 2006

    SBA Lenders they are not all the SAME.

    The Small Business Administration or SBA for short has two distinct designations for lenders. There is a drastic difference between the categories as to how and when your loan will be approved. Certified Lender Providers (CLP) and Preferred Lender Providers (PLP) are the two broad categories with various sub categories.

    Commercial banks and savings and loan associations are eligible participants. A commercial lender can be either a CLP or a PLP. Other types of commercial lenders may apply to become eligible participants through the SBA field office serving the area where the lender operates.

    Lets start our discussion with CLP.

    Under the Certified Lenders Program (CLP), designated lenders process, close, service and may liquidate, SBA guaranteed loans. SBA gives priority to applications and will provide expedited loan processing or servicing.

    Upon nomination and approval, SBA designates lenders for CLP status. CLP lenders must perform a thorough credit analysis on the loan application packages they submit to SBA so that SBA can rely on that analysis to allow it to perform a credit review instead of a complete credit analysis, thus shortening the SBA loan processing time. For CLP loans, SBA still makes both credit and eligibility decisions about whether to guarantee the loan. The Agency will review the portfolios and practices of CLP lenders from time to time to monitor their ability to process, close, service, and liquidate SBA loans.

    In other words a CLP lender can do everything preliminarily to approve a loan for a borrower except give the final approval. So the bank prepares the entire loan package and then sends it off to the local SBA office for approval.

    A PLP on the other hand can close a loan in the name of the SBA without any further approvals as noted in the code section quoted below

    Under the Preferred Lenders Program (PLP), designated Lenders process, close, service, and liquidate SBA guaranteed loans with reduced requirements for documentation to and prior approval by SBA.

    Providing that all information in the loan package meets the basic standards of the SBA a PLP lender only goes to the SBA for a number prior to closing the loan. NO other approvals are forthcoming.

    However if for example a question on the personal statement should be answered yes and the applicant answers no a PLP lender may be required to go to the local SBA for an override approval.

    Therefore in conclusion if you are ever going to pursue an SBA Loan, deal only with a Preferred Lender Provider or insist that your financial broker only works closely with PLP's.

    Just by asking about PLP vs. CLP you will know if your financial advisor is astute, use this question as a way of finding the right broker for you.

    Ask the Broker?

    This month since it is the beginning of a New Year there will not be a question, but rather a statement.

    We wish everyone a very Happy, Healthy, Prosperous Year and may all your dreams, goals and aspirations for the new year all come true!


    If you are interested in joining our company please contact either Harlan or David directly. We will be expanding this year and would like to have you join us. For those financially astute individuals we offer a proven system to build your commercial finance business along with comprehensive training.

    Please email your questions to "Ask Your Financial Broker" at

    UP-Coming Seminars
    Call the Office at 858-592-0659 for upcoming topics, times and dates.

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    phone: 858-592-0659

    Lightning Commercial Funding, Inc. | 16486 Bernardo Center Drive | Suite 100 | San Diego | CA | 92128