Agency Loans
Unlike Conduit Loans, Agency loans are credit-based loans and are full recourse loans. Agency loans offer the best rates and terms and are conforming loans.
SBA loans are commercial mortgage loans secured by owner-occupied real estate properties that are partially guaranteed by the U.S. government or provide below-market interest rates to borrowers using the credit of the U.S. government.
USDA loans are commercial mortgage loans partially guaranteed by the United States Department of Agriculture (USDA) secured by owner-occupied real estate properties located in rural areas. The loans are guaranteed through the USDA Business and Industry Loan (B&I) Program.
The two primary SBA loan programs are the SBA 504 program and the SBA 7(a) program.
The SBA 504 program provides financing for the purchase and refinance of owner-occupied commercial real estate. For a purchase, the loan structure is typically a 50% first mortgage loan provided by the SBA and USDA, a 40% second mortgage loan provided by a government-sponsored Certified Development Company (CDC) and 10% equity provided by the buyer (15% equity required for certain projects like special purpose buildings such as a car wash or hotel) or for startup businesses. For additional information on SBA 504 loans, visit http://www.nadco.org/?page=whatis504
The SBA 7(a) program provides a 75% guarantee to SBA and USDAs and approved finance companies to encourage lenders to make refinance or purchase loans secured by owner-occupied commercial real estate that would be considered too risky to close without the guarantee. For additional information on SBA 7(a) loans, visit https://www.sba.gov/blogs/sbas-7a-loan-program-explained
Agency loans are underwritten based on the income generated from the property being financed (i.e., the most recent 12 months’ income from tenants that occupy the property less property operating expenses during the same period).
Agency loan underwriting does not consider any income the property owner earns from other sources, such as salary income or net income from other real estate sources. However, agency loans have minimum credit score requirements for the owners (typically 680, on average, for more than one owner; or 620 for an individual owner) and other specific underwriting criteria.
See Our Agency Checklist
The following types of leased income-producing real estate are eligible for Agency Loans:
- Multifamily
- Manufactured Housing Communities
Within these categories, the following sub-categories are also eligible:
Eligible Multifamily: Student Housing, Age-Restricted (Seniors) Multifamily, Furnished Multifamily, Multifamily with Section 8 voucher tenants, Multifamily with HAP contracts, Multifamily with IRS Section 42 tax credits, Cooperative properties (underlying loans).
Eligible Manufactured Housing Communities (MHCs; also known as Mobile Home Parks): MHCs with up to 20%-25% landlord-owned homes and MHCs with single-wide homes.
Construction and substantial rehabilitation projects are not eligible for agency loans.
Healthcare (defined as real estate with meals and health services provided) are not eligible for agency loans. Properties with well below-market occupancy are not eligible for agency loans (but may qualify for a (bridge loan). Owner-occupied real estate is generally not eligible for agency loans.
Agency loans are available for loan amounts from $1 million to $100-plus million.
Yes. Supplemental loans are available 12 months after the closing of the senior agency loan.
Class A, Class B or Class C properties are eligible for agency loans.
Classifying commercial property is subjective, but some general criteria that may qualify a property for an agency loan include the following: less than 20 years old or recently renovated; limited or no deferred maintenance; and/or competitive within its market.
The best way to qualify a property is to contact us with the property address. Together, you can use Google earth to look at the property and determine its eligibility.
Agency loans are available for properties in all 50 states and Puerto Rico. Properties must be located in a major metro, secondary or tertiary location.
Properties located in rural areas are generally eligible for agency loans but at higher interest rates and lower LTVs. Determination of a rural location is subjective, but a general criteria is a population of less than 20,000 persons.
Contact us with the property address to determine if the property is eligible for an agency loan due to its potential rural location.
The majority of the costs to obtain an agency loan is the fees for an appraisal, property condition report, Phase I environmental site assessment, and lender’s legal charges.
In addition, typical commercial real estate loan closing costs include title insurance costs, survey charges, and borrower counsel fees. The typical expense deposit to cover these costs is $8,500 in the SBL program and $12,500 in the large loan program.
Should the borrower cancel the loan during the underwriting and closing process, any unspent deposit will be returned to the applicant.
The standard prepayment penalty for agency loans that provide the lowest interest rate to the borrower is yield maintenance. Agency loans offer a declining “step-down” prepayment penalty in exchange for a higher interest rate.