Buying a commercial property demands significant upfront capital, and most investors will need commercial real estate loans to bridge the gap. However, securing traditional CRE financing often involves a lengthy verification, which can stall momentum and cause you to lose out on great deals. Things can be even more challenging for self-employed individuals with fluctuating income streams who often need help qualifying for traditional loans.
This is where stated income commercial lenders step in. Recognizing this hurdle, these lenders offer alternative solutions tailored to the realities of self-employment.
Stated income loans have become CRE investors’ best alternative to no-income verification loans. With these loans, emphasis shifts from rigid income requirements to a more holistic assessment of your financial strength and the property’s potential.
The rise and fall of no-income verification loans
Banks and other traditional lenders require extensive documentation to assess your ability to repay a commercial real estate loan. This includes income verification through tax returns, pay stubs, and bank statements for several years. With this documentation, qualifying for a traditional loan from a bank can be more accessible.
Lenders recognized that problem and introduced no-income verification loans. Also called ‘no doc mortgages,’ these financing solutions didn’t require borrowers to submit proof of income or any documentation to prove their monthly earnings.
Why no-income loans failed
No-income loans instantly became popular with self-employed borrowers and freelancers who wanted to buy homes in the early 2000s. But soon enough, the lack of income verification ultimately led to their downfall.
Defaults mounted as many borrowers struggled to repay these loans, causing significant problems for lenders and eroding the credibility of no-doc mortgages. No-income loans became one of the underlying causes of the 2008 Housing Crash in the US, prompting governing agencies and bodies to take action by implementing the Consumer Protection Act of 2010 and Dodd-Frank Wall Street Reform.
This crash also affected commercial real estate lending. Although stated-income loans are still available for qualified CRE borrowers, stated-income commercial lenders are now required to have stricter and more precise guidelines in place.
An in-depth look at stated income loans as alternatives to no-income verification loans in commercial real estate
Stated income loans are now the best alternative to other no-income loans. They cater to self-employed individuals and business owners whose income streams may differ.
Unlike banks, stated-income commercial lenders focus on a borrower’s financial strength and the property’s potential rather than solely relying on income verification through tax returns or pay stubs.
The key to experiencing the benefits of stated income loans is finding a trustworthy lender who understands the CRE landscape and can accurately assess your financial strength and the property’s potential. The best lenders also understand the unique problems of CRE investors (such as vacancy rates and fluctuating tenant income), so they can tailor loan packages to address these challenges and mitigate risk.
Learn more about the commercial stated income loan and how it can help secure your dream real estate property.
How to qualify for this a stated income loan to buy a commercial property
Stated income commercial lenders only need bank statements to prove your cash inflow. They focus on your overall cash flow management and will also consider your assets, home equity, and other relevant factors to assess your ability to repay the loan.
Differentiated income commercial lenders have different sets of qualifying requirements, but in general, they ask for the following:
- A minimum 10% down payment – This can be higher based on the loan amount, typically 15% to 20%.
- Bank statements from the past 12 to 15 months – Ensure it’s under your name or business.
- A good enough credit score – Borrowers with lower credit scores may be required to make a larger down payment to mitigate the lender’s risk.
Four types of commercial stated income loans
- Stated Income, Verified Assets (SIVA)
A SIVA loan can be a good option for CRE investors who can demonstrate solid financial assets but need help to verify their full income stream. This might be the case for businesses with a significant portion of income coming from sources not reflected on traditional tax returns (such as high-commission sales or performance-based bonuses).
Verifiable assets (such as investment portfolios or existing real estate holdings) can strengthen your application and demonstrate your ability to repay the loan. Lenders can tailor the loan terms to your financial situation and the property’s potential.
- Stated Income, Sated Assets (SISA)
SISA loans are popular with sole proprietors who need help documenting their income through traditional means (like W-2s or pay stubs). They’re also suitable for CRE investors who keep a significant portion of their assets in a business account or those whose income comes from sources not easily verified on paper. For example, you might draw a high income but lack formal documentation, or your assets may be difficult to quantify.
That said, SISA loans don’t only partially assess verification. Lenders will typically ask you to submit bank statements from the last 12 to 15 months to determine your cash flow and get a clearer picture of your financial health based on your income and expenses. Despite this, a SISA loan can be convenient if you work with a reliable income commercial lender. It eliminates the need for extensive tax return documentation. SISA lenders may also be more open to tailoring loan terms to your situation.
- No Income Verification, Verified Assets (NIVA)
Instead of looking at your income flow, a NIVA lender will check your verifiable assets and use that as the basis for the loan. Verifiable assets could include investment portfolios, retirement accounts, or property holdings.
This makes NIVA suitable for retirees with accumulated wealth or individuals whose income comes from non-traditional sources that are difficult to document. The loan amount you qualify for will be directly tied to the value of your verified assets.
- No Income Verification, No Asset Verification (NINA)
NINA loans are the most flexible option from stated-income commercial lenders. They bypass both income and asset verification — instead, the loan amount is based solely on the value of the collateral you pledge to secure it. This minimal documentation approach makes NINA loans attractive to borrowers who can’t easily document their income or assets.
Advantages and Disadvantages of Stated Income Commercial Loans
If you cannot qualify for other conventional loans, a stated-income commercial loan might be for you. But before you apply, it’s essential to understand this approach’s advantages and potential drawbacks. Let’s start with the advantages:
Advantage #1: Less documentation required
The biggest benefit of stated income commercial loans is that you can be approved with unverifiable assets or fewer documents. This makes these financing solutions ideal for CRE investors without a steady income flow and those who cannot provide verifiable documentation about their income.
Advantage #2: No need to have a good credit score
Stated income commercial lenders don’t require a stellar credit score. While preferred, a good credit score is not a qualifying factor. Lenders will instead base your loan approval on conditions like the property value, loan amount, loan repayment capabilities, and bank statements.
Advantage #3: Faster closing
CRE transactions are fast-paced, and stated income loans can keep up with that speed. These loans mainly come from private money lenders who work fast. Closing periods take only three days to 2 weeks.
Advantage #4: A go-to option when other financing is unavailable
While not ideal for every situation, stated-income commercial loans can be a lifeline for borrowers who need help to qualify for traditional financing. As long as you can convince stated-income commercial lenders of your capacity to repay, you can secure the loan you require with few or no questions.
That said, stated-income commercial loans are not for everyone. Here are some disadvantages:
Disadvantage #1: Bank statements required
While these loans require minimal verification, you must show your bank statements to stated-income commercial lenders. Even if you have assets for collateral, lenders may require an appraisal to determine their fair market value.
Higher interest rates
If you default on loan payments, lenders have nothing to cushion them, so they compensate by charging higher interest rates. Don’t hesitate to negotiate and form a good relationship with a private lender to get favorable terms.
Hefty down payments
Most commercial stated income loans require larger down payments. This is because lenders take on more risk without extensive income verification.
If you are a CRE borrower with limited upfront capital, don’t worry—you can always negotiate. By building a rapport with a private lender and demonstrating a strong ability to repay the loan (through assets, project potential, or other means), you might be able to secure financing with a lower down payment.
All this said, it’s essential to be realistic, too. Borrowers with a history of foreclosure or bankruptcy may face stricter requirements, including higher down payments. This reflects the increased risk the lender assumes by approving your loan.
Are you looking for a stated-income commercial lender?
Increase your chances of getting approved by engaging reliable and trusted income commercial lenders like Private Capital Investors. We have years of experience helping self-employed borrowers and freelancers secure these loans. We will walk you through the process to help you understand the terms and conditions and answer any questions you might have about these CRE financing solutions. Contact us here or call 972-865-6206.
