But where banks have really excelled in the low-growth environment has been in keeping expenses low. Costs have grown on average just 1.2 percent per year since 2009 and have been effectively flat over the past two years, he said. “The net result is that the fourth-quarter figures for the industry are expected to be flat to down,” Bove said. “This will be the source of the earnings increase expected in this period. Expense control will also be a significant factor in 2017’s earnings performance.” To be sure, Bove’s skepticism is not universally shared. Some analysts believe 2017 could be another big year as banks amp up risk activity.
There are some other disadvantages to non-bank commercial property borrowing, namely the high expectations of the lender. Commercial mortgages can be structured as first liens or, if a greater loan amount is desired, the borrower may be able to obtain subordinate financing as well, sometimes structured as a mezzanine note or as preferred equity, which generally carries a higher interest rate. Just as home-owners often use a home equity loan to raise cash for household purchases, improvements, or expenses, commercial borrowers also use second mortgages, equity loans, or refinancing strategies to raise capital for such things as equipment, inventory, or business expansion. Another way that commercial and residential loans differ is in the loan-to-value ratio ITV : a figure that measures the value of a loan against the value of the property. Small Business Administration’s 504 Loan program, make loans for commercial real estate.