First Time Buying Commercial Real Estate - Couple of Questions
I'm working on buying my first commercial real estate. I keep getting conflicting advice and it's causing me to lose confidence in the people I'm working with and makes me feel like I'm floundering and flailing around without aim. I'm hoping some experienced people here can offer a little clarity?  


I have contacted two large banks about mortgages. At the first, we have been working towards an SBA loan for a property a bit under 500k. My previous years accounting paperwork was kind of scattershot so it takes a lot of work for me to pull together all the information from 2019. (much better systems in place now) They keep asking for more and more detail from that year. Sometimes they say things like "I'm not sure the underwriter will want it like that". But when I ask for clarity, they can't answer. This has happened multiple times. 

I feel like I'm talking to a check list guy. Which is fine, whatever. But is he not allowed to ask questions to the underwriter? Or even someone that knows details? Another for instance: "we need to show positive cash flow". Ok, cool. What do I need to provide to show that? "We just need to show that it's positive". It's like pulling teeth to get them to tell me how that's calculated. Then after nearly 2 months of back and forth and crunching 2019 numbers, they tell me they actually only need 1 year of information and that they want to wait until I finish 2021 taxes. Whatever, but I put a LOT of time into getting 2019 straightened out.  


The second bank: You'll need 20% down, do you have that?  
Me: Yes, but I'd like to look at an SBA loan.  
Bank: I don't think you'll qualify and we don't really do those.  
Me: Looks up SBA lenders on google and this bank is in the top 10 most active as of Sept 30th, 2021. 

&amp;#x200B;

Real Estate Agent: We'll want to get pre-approved before we approach the owner.  
Bank #1: we can do that, subject to appraisal.  
Bank #2: we'll need a signed purchase agreement before we can do a loan.

Sorry, that kind of became a rant. 

Question 1: Can they not speak to the underwriter, or someone, about specifically what information they'll need? 

Question 2: Am I dealing with people that have no experience, or why do I feel like I'm getting such conflicting answers?

Question 3: Is it common to require a signed purchase agreement before securing financing?
[{"id": "hpmdokv", "text": "I didn\u2019t read everything because it\u2019s way too long. Commercial broker and investor here so perhaps I can clear up some stuff.  \n\n1. The bank will want to see a property\u2019s profit and loss as well as a rent roll to pre approve. This of course will be subject to the actual inspection. \n\n2. You do not need a purchase agreement to get pre approved.\n\n3. You have due diligence built into the contract in order for you to have these things done. You can include a loan contingency if you feel as though you need it.\n\n4. Your broker is right, without pre approval and you come with an offer, as an owner, I\u2019ll laugh at you. Only way to buy without pre approval or anything is full cash.\n\nEdit: If you are uncomfortable with dealing with banks directly you could go for a loan broker. You have to pay the loan broker usually 1% but it might be worth it if they can get you lower rates. I\u2019m not sure if you are dealing with incompetent people, but that shouldn\u2019t be a question you ask at that point, perhaps you didn\u2019t do enough due diligence on who you chose before you chose them. That is your own fault really.", "replies": [{"id": "hpmfaoj", "text": "I second this all pretty great advice. I would absolutely get a broker to at least look at the financing options they can offer. If they can do better why not, if they can\u2019t, don\u2019t use them. Good luck buddy \ud83d\udc4d", "replies": [], "depth": 2}, {"id": "hpmpgkp", "text": "Regarding due diligence: these are major banks, so I'm sure this isn't their first rodeo. I'm sure there are very competent people there, but that doesn't seem to be the people I'm speaking to currently. These seem to be the gatekeeper before the knowledgeable people. I would guess that they consider this a fairly small deal for them.\n\nRegarding the broker: thank you for the advice. I had not looked outside of the traditional large banks. I will look into that as well.", "replies": [], "depth": 2}], "depth": 1}, {"id": "hpmkx9d", "text": "Typically you won't be able to get a preapproval for a commercial property in the same way you do on a residential property. Your real estate agent should know that. The reason for this is many lenders will qualify the \"property\" (based on income/expenses and the rent roll) and you yourself. A lender can't qualify a property without the financials of the specific property.\n\nIf you are going SBA there are actually 2 lenders on the deal (depending upon the program). There are different departments within different banks who handle SBA loans. I'm sure, depending upon where you are located, anyone in this sub can refer you to a good SBA lender in your area. Keep in mind, on an SBA property, you will need to occupy a minimum of 51% of the property.\n\nThe 20% option or more is typically an owner/user conventional type of loan.\n\nThe loan broker who responded can disagree with my assessment of the \"preapproval\" if they wish. In the past 3 months, I have closed on a mixed use SBA deal, an industrial SBA deal, an apartment building and a shopping center....on all of those cases, the buyer's were not able to get any type of \"approval\" without having the details of the property they were securing. The lender did review their qualifications to determine they had the credit and assets necessary, but the property is just as important in commercial as the buyers' qualifications.", "replies": [{"id": "hpmork3", "text": "Thank you. This is for the building that our business is operating in, so as far as the financials we pretty much know all of that. Ultimately, the mortgage is likely to cost less than our current rent. I don't know if that impacts or simplifies the process, but thank you for the input.", "replies": [{"id": "hpmsfap", "text": "As I re-read your comment, maybe I'm at fault for not using proper terminology. I am purchasing the building that our business is operating in. I would like to know that we'll be able to get a loan for the amount we're going to offer before we make the actual offer. I'm not sure if \"pre-approval\" is the right term for our situation.", "replies": [{"id": "hpp7u95", "text": "Do you use a smaller local 1-3 branch bank for your regular business needs?  Checking account, etc?  If so, talk to their commercial lending department, they\u2019ll be able to help you out.\n\nBig banks want cookie cutter loans.  If your profile doesn\u2019t fit easily into their criteria, it\u2019ll be a huge pain in the ass for you, if they\u2019ll even lend to you at all.  It\u2019s way easier to work with a local 1-4 branch bank or credit union for the type of purchase you\u2019re making.\n\nIf you don\u2019t already bank with a place like this, no problem.  You probably already know a couple local banks.  Their websites will advertise community lending.  Talk to their commercial lenders about your situation and they\u2019ll be able to tell you right away if they want to pursue your loan.  Community banks exist because of loans like this.  Good luck!", "replies": [{"id": "hps4jb6", "text": "100/100 a local smaller bank would be a better and easier fit in this situation", "replies": [], "depth": 5}], "depth": 4}, {"id": "hq3g3r3", "text": "As a 35+ yr former financial institution lender here are my thoughts. As another responder mentioned, comm real estate loans are more heavily based upon the specific property economics, so a \u201cpre-approval\u201d without the terms of the purchase (signed purchase agreement) is fairly worthless to a seller IMHO. Bankers generally don\u2019t want to put in the time to provide a pre-approval without a signed purchase agreement as they can end up wasting time on a lot of deals that never get done in lieu of signed Purchase deals. An owner operator tenant buying their building is an attractive loan to smaller community banks and credit unions that do CRE. For this amount, why do you want to go SBA if you can swing 20% down. You should have everything you need to put a good loan package together. The lender that couldn\u2019t tell you what they need is likely not a good choice, go another route. What industry your business is in will have a big impact on the credit appetite of the lender. I could pre-flight you in about 20 minutes to tell you if you are likely to get financing, the right lender should be able to do this. Good luck!", "replies": [], "depth": 4}], "depth": 3}, {"id": "hpn31pm", "text": "If you're buying the property that you are currently operating in AND buying the property would reduce your monthly occupancy costs, you would think it would make the qualifying process simpler for you (at least it gives a good argument in your favor). You will need to check comps of similar properties in the area, although rule of thumb....an owner occupant will typically pay MORE for a property than an investor will. What does that mean? The property would more likely appraise at a higher value with an owner operator utilizing and occupying the property (that has been my experience). In CA, if you go with a 10% down payment SBA, you will need to cross collateralize the other 5% with your home of some other asset or you can potentially go with 15% down with no cross collateralization.  SBA is typically looking for this year's YTD P&amp;L in addition to your last 2 years of tax returns for qualification purposes.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "hpnwywl", "text": "To be completely honest, there are certain requirements you must fulfill or it is not worth a bug bank to even look at it. There are smaller banks that can do start up or projection based deals, but those are not the deals for the big banks. The bug banks want easy cookie cutter deals from a historical hood company with paperwork to back it up. If you have two years taxes showing healthy profit, the bank should have no issue giving you a pre qual. I\u2019m surprised you are having this much trouble.", "replies": [], "depth": 1}, {"id": "hpxshu4", "text": "I\u2019m an agent so take what I say lightly. Large banks suck unless you have the cleanest deal and vanilla type property. From my experience, and I\u2019ve sold a ton of properties to SBA buyers, you\u2019re better off with a local/regional bank that has closed similar properties to what you\u2019re looking for.", "replies": [{"id": "hpxssor", "text": "Would like to add, if your property is in California, you can DM me and I\u2019ll send you two referrals. One is a Commercial Mortgage Broker and the other is my \u201cgo-to\u201d SBA guy.", "replies": [], "depth": 2}], "depth": 1}]