Have Questions About How an Owner Occupied Commercial Property Loan Works?

August 26, 2022

Owner occupied commercial property loans are popular with small-to-medium size businesses and commercial enterprises in Texas, especially companies that are looking to purchase a new piece of property or become the majority owner of an existing property they currently rent.

We are often asked exactly how this type of commercial real estate loan works and why companies should apply. We would like to answer your questions about an owner occupied loan so that you can identify whether this financing option is a good fit for your company.

Owner Occupied Loan: What You Need to Know

From property review to funding, there are several important steps in the owner occupied loan process. Let’s unpack key information about each of these steps.

1. Does My Business Have to Occupy the Entire Property?

We are frequently asked whether a business has to occupy 100% of the property if they apply for an owner occupied loan. The answer is no, you do not have to occupy the entire property.

The designation of “owner occupied” only requires your company to meet a minimum standard of occupying at least 51 percent of the property. You can then lease out the remaining 49 percent if you desire to generate additional revenue by collecting rent from tenants.

2. What Are the Primary Qualifications for an Owner-Occupied Loan?

At Texas Gulf Bank, we want to ensure that an owner occupied loan is the right choice for your business at your current stage of business operations. We will perform the following evaluations to ensure that you meet the qualifications to pursue this type of loan:

Do you have substantial cash flow to support a new loan?
What will be the difference between your current rent payment vs. the loan payment financing the purchase of new property/becoming the majority owner of a property?
Is your company in a position to maintain continuous operations during the transition to an owner occupied property?

Ultimately, our goal is to ensure that your company is well-positioned to take this step. We will provide you with solid advice about whether now is the best time to build a new building, move into a new building, or take over ownership of an existing property. Or, our lenders may recommend waiting a period of time to stabilize operations, grow revenue, and strengthen cash flow.

We have decades of experience with commercial real estate loans, so we can evaluate your current situation and help you make an informed decision about whether to proceed or wait.

3. What Do I Need to Provide if I Do Apply?

If you decide to proceed with an owner occupied loan, we will request several pieces of information about your business and key commercial real estate documents so that we can start the application process including but not limited to:

A completed and signed commercial loan application.
Borrower and any Guarantor(s) Financial Statements and tax returns from the past 3 years.
Year to date Business Balance Sheet capturing assets such as inventory and Accounts Receivable and expenses such as payroll, insurance, Accounts Payable, and other obligations.
The value of the commercial real estate, as well as value of any other assets in the business that may be offered as security on the loan.
Cash Flow Statement capturing recent inflows and outflows from the business.
Pro forma statement for the next 2 years capturing the expected change to the business if approved for this type of loan.
Information about the property you are looking to occupy.

Our lenders will review this information to validate you are positioned to occupy the property. We will then submit your application to our in-house review department to start the loan review process.

4. What Will Be Included in the Review Process?

There are several important steps in the loan review process. We are very thorough, but because we are local and all of our lending decisions are made internally, we can provide you with an expedited timeline.

Our initial review time is typically 7-10 days.
After the loan is tentatively approved, we will order an appraisal of the property.
The appraisal could take up to 2 weeks depending on the availability of appraisers in the area.
If you are looking to build, then we will need to go through the local municipality to obtain permits.
For an existing property, we will do an in-person inspection, in addition to obtaining an appraisal.
We may also order an Environmental Site Assessment (ESA) depending on the historical use of the property.

An ESA is an important aspect of the loan review process because the ESA will tell us if there are any environmental hazards to be aware of. For example, if the property was previously used as a gas station or dry cleaner, there could be environmental hazards. We will keep you informed about the findings of an ESA to ensure that your business is protected.

– Overall, we will keep you informed throughout each step of the loan review process. Our goal is a total time of 3-4 weeks from the time you apply for an owner-occupied loan until closing. However, the timeline for your particular loan could be longer if there are issues on the property, such as the discovery of environmental hazards, or if we need to go through the city for permits.

5. How Are Owner-Occupied Commercial Real Estate Loans Typically Structured?

We typically structure an owner occupied loan to finance up to 80 percent of the appraised value of the property or the total cost of the property, whichever is less. Your business would then be responsible for 20 percent equity upfront. This is another reason why we take a close look at financials and cash flow to ensure that your business is equipped to make the initial down payment.

The loan itself is typically a fixed-rate loan of 5 years in length. We also offer 7-year variable-rate loans depending on the strength of your company’s financial history and any guarantors credit scores.

Once the loan is approved and we have performed our due diligence on the property, we will present you with the loan terms. You will have the opportunity to review the terms and make a decision on whether to accept the loan and advance to closing. We will then fund the loan so that you can acquire the property that you are looking to occupy.

6. Why Should I Apply Through Texas Gulf Bank?

We have provided you with ample information about how an owner occupied loan works. Now the question is: why should you choose Texas Gulf Bank? We believe that we offer the best experience for business owners and commercial companies along the Texas Gulf Coast:

You will have access to a single point of contact for loan review, approval, and funding.
We offer personal service for your business and our lenders are readily available.
We know the market and we understand how to navigate challenges at the local level.
You will benefit from our substantial lending capacity to access the capital you need.
We are interested in a banking relationship with your company, not a single transaction.
We will advise you on the best course of action for your business, not put you in a difficult situation.

Apply Today for an Owner Occupied Loan

Ready to grow your business? We encourage you to contact our bank to learn more about whether an owner-occupied loan is a good idea for your company.

Our helpful experts will review the current state of business operations, provide you with helpful information about financing an owner-occupied property, answer your questions about how this type of loan could affect your company, and help you get started on the application process if you’re ready to advance to that step.

Let’s start a conversation today. Stop by a local Texas Gulf Bank banking center or give us a call at 713-595-7400. We look forward to supporting your business!

All Loans Subject to Credit Approval