How to Apply in Texas for a Commercial Real Estate Loan

David Cohn
May 8, 2023
Commercial Real Estate Lending

Commercial real estate (CRE) in Texas continues to be a popular investment choice because of its proven track record of success.

After all, the Texas CRE market is known for its excellent risk-reward profile. Austin's booming tech industry, affordable cost of living, and diverse talent make it the second-best CRE city in the US.

And then there's Dallas, which boasts robust industry growth and a relatively low cost of living compared to other markets. As a result, Dallas multifamily properties continue to see expansion with a 95.6% occupancy rate in the first quarter of 2022.

Fort Worth is also becoming increasingly popular for commercial property investors due to the greater affordability of properties. The city has seen a 22% growth rate since 2010. Like Houston, Neighboring San Antonio remains a superpower in industry and investment.

Expansion of large corporations like Amazon, Lowes, and Hewlett Packard creates hundreds of new jobs, making the city potentially lucrative for CRE deals. It is simple for astute business owners and investors to recognize properties that have the potential for purchase. The real challenge is accessing commercial real estate financing.

This blog post will provide information on applying for a commercial real estate loan in Texas, identify the types of customers and industries best suited for such loans, and explore the shortcomings of traditional bank financing.

We also discuss non-bank real estate funding sources such as Commercial stated income loans, commercial hard money loans, cash-out refinancing, and permanent financing.

The basics of Texas commercial real estate loans

Applying for a CRE loan in Texas is much more involved than applying for a residential real estate loan. Keep in mind that:

  • The loan terms to usually shorter, ranging from 5 to 20 years
  • A larger down payment may be required
  • Prepayment penalties may also apply if the loan is paid off early
  • Environmental site assessments are mandatory

What to do before you apply for a CRE loan in Texas

Before submitting your application, make sure that the business entity is in good standing both legally and financially and that there are no delinquencies or issues with sales tax, franchise tax, liens, or legal issues that would prevent your application from being approved.

Confirm if your business intends to use the property for its use (referred to as owner-occupied) or if you plan to own the property but rent it out to other companies (non-owner-occupied). This decision will affect the maximum loan amount available and the down payment required.

Documentary requirements for Texas commercial real estate loans

To apply for a CRE loan from a bank, you will likely be required to submit the following:

  • Business balance sheets
  • Tax returns
  • Financial statements
  • Environmental site assessments
  • Information about the intended use of the property
  • Lease terms, tenant information, and financial projections

In addition, you must provide legal documents of the entity that will own the property and guarantee the loan, as well as any necessary permits or business licenses.The bank may also ask for information about your short-term and long-term plans and projections for the CRE property.

This includes details about the intended use of the premises, the construction plans, the length of ownership before construction begins, the type of building planned, and the percentage of the property your business plans to occupy.

Businesses and industries that can benefit most from Texas commercial property loans

Commercial real estate loans benefit various businesses, but some industries benefit more. These include contractors, small business owners, property investors, commercial builders, and developers.

Industries that require a commercial real estate loan include corporate offices, retail locations, hotels, restaurants, commercial warehouses, healthcare facilities, and mixed-use properties.

The Shortcomings of Traditional CRE Financing in Texas

Banks generally offer commercial financing for various properties, with an average loan of around $1 million. The benefits include convenience and access to long-term funding. However, in some cases, and depending on your investment goals, a traditional bank may be the best source of CRE funding.

The loan application process can be slow, taking a few months. Banks also require a long list of documents. As a result, only those with good to excellent credit are likely to be approved. These traditional financial institutions also prioritize clients with significant deposits and those who use multiple product lines.

Although opening another depository account is unnecessary, it can increase the chances of approval.

Banks also are limited in the types of commercial properties they accept. They usually prefer properties with stable values, but they also offer loans for projects that add value to the property or for new constructions.

Commercial mortgage loans from banks are typically paid over 20 or 25 years, with 3- to 10-year terms to decrease prepayment penalties. If you have a good relationship with the bank, they may be willing to make exceptions to their usual lending criteria to help you.

Other CRE loan sources

Luckily, you don't always have to use traditional financing to get the capital you need for your CRE project. There are several other options.

  • Non-bank commercial lenders – These finance companies offer commercial real estate loans for small and medium-sized companies at higher interest rates than banks but with less rigid underwriting standards and faster approval. This option may have lower fees and closing costs but may require a balloon payment within 5 to 10 years and typically involves short-term loans.
  • Private CRE lenders – These investors are highly flexible and lend money for any commercial property deal that appears sensible to them. They consider an agreement "sensible" if it is backed by a robust business plan and the borrower can explain how they will repay the loan upon its maturity. The terms of private capital loans are comparable to debt funds, and the interest rates usually range from 7% to 15%.
  • Permanent loans - A permanent loan is longer than usual, typically used for commercial real estate. Banks, credit unions, or life insurance companies usually offer it, which is amortized over 25 years. However, the lender may shorten the amortization period if the property is over 30 years old and in poor condition.
  • Hard money lendersHard money loans are short-term loans provided by private companies based on the property's value, with higher down payment requirements. They are easier to qualify for and have faster approval times than traditional mortgages but have higher interest rates, lower LTV ratios, and short-term financing options.
  • Hard money loans are considered riskier and come with higher interest rates. However, they can be closed quickly and need a more rigorous underwriting process. The borrower's financial position is not a primary concern because the collateral is the main focus.
  • Stated income lenders - Stated income loans are a popular option for commercial real estate financing because they are easier to obtain than traditional financing. Lenders do not require tax returns and W-2s. Additionally, you don’t need a very high credit score. No checking account statements are required, either. To put it simply, a stated income loan is a mortgage that requires less documentation than other types of loans. You are still required to provide information about your income and assets, but the lender will not verify them. However, the lender will verify your income source as stated on the application.
  • Cash-out refinancing – In this lending process, the borrower obtains a new loan and utilizes the funds to repay the outstanding balance of their existing loan. The excess funds remaining after the repayment are then given to the borrower as cash.
  • Cash-out refinancing can be helpful for real estate investors who want to free up capital for other investments, such as renovations or property upgrades. First, however, it's essential to understand the various factors involved in a cash-out refinance, such as the property's cash flow, value, and loan terms.

Get expert help in applying for commercial real estate loans in Texas.

Working with a CRE financing consultant can be a smart move for investors seeking the best commercial property loans for their projects in Texas. These professionals have the knowledge, experience, and resources to help investors navigate the intricacies of CRE refinancing.

You can leverage their expertise to ensure that you make informed decisions aligning with their investment goals.

Additionally, CRE financing consultants have access to a vast network of industry professionals, which can be helpful for borrowers looking to secure favorable loan terms or find other investment opportunities. They can help you maximize your returns and minimize risks when pursuing commercial property loans in Texas.

Capital Investors Direct (CID) is a group of experienced underwriters, loan experts, and advisors who use advanced commercial real estate finance technology to provide quick and effective asset-based financing. We don't just offer financial support but also guide you to ensure the success of your project.

To get started, fill out the application on your website and let us create the ideal loan for your investment goals.