Small Balance Commercial loans (SBC loans) are very similar to investor loans secured by single-family (SFR Investor Loans) homes as we pointed out in our previous post "What are the Differences Between SFR and SBC Loans?" The difference lies primarily in the collateral securing the loans and the loan amount.
SBC lending is usually between $300,000 and $3,000,000 (this will vary by lender) and is secured by a first mortgage or deed of trust on one of the following property types:
- Multifamily – 5 or more residential rental units
- Mixed-Use (residential) – mix between commercial and residential units, where more than 50% of the income comes from the residential rents
- Mixed-Use (commercial) – mix between commercial and residential units, where more than 50% of the income comes from the commercial rents
- Retail – most lenders will shy away from single tenant buildings due to the risk associated with the loss of the tenant (of course this excludes the situation with a credit tenant triple net lease)
- Office – multiple tenants are required by most SBC lenders
- Light Industrial – multiple tenants are required by most SBC lenders
- Flex Space (typically a warehouse with a small office component)
Like SFR Investor Loans, SBC Loans primary source of repayment is the cash flow generated from the property. So, in either case review of the leases and the economics of such is very important to the lender.
Obviously this is just a basic overview of SBC lending, in this blog series we will explore in depth many of the other aspects associated with SBC lending, including types of risk associated with loans, property type details, property financials, important calculations / ratios and more.
Check in regularly to read more about SBC lending, and check out the "Small Balance Commercial" section of our blog.
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