Making Business Easier: Long-Term Fixed Rate Commercial Loans

BY: Stanley D. Koopmans

Traditional commercial loans typically offer a fixed interest rate for 3 to 5 years, with the need to renew the loan and establish a new interest rate at maturity. However, a valid concern in our current low-interest environment is that interest rates will be substantially higher when the loan matures.

There may be another solution. By partnering with a financial intermediary, State Bank of Cross Plains can help your business secure a commercial loan with a fixed interest rate for up to 25 years. These long-term loans are especially attractive at this time due to the following reasons:

  1. Interest rates are still near historical lows.
  2. The yield curve is very flat. In fact, in some cases, the rates are lower for a long-term loan than a short-term loan.  
Most of these transactions are used to finance commercial real estate with standard loan-to-value guidelines, but other long-term assets are also eligible.

Benefits of a Long-Term Loan

Typically, banks provide long-term loan options via an interest rate swap, which falls under the auspices of the International Swaps and Derivatives Association (ISDA). State Bank of Cross Plains long-term loans offer some distinct advantages over traditional ISDA swaps:

  1. Rate Portability: If the underlying real estate collateral is sold before the loan matures, the borrower can choose to apply the existing long-term interest rate to a different property or even blend it into a larger new loan facility.
  2. Loan Assumability: Subject to State Bank of Cross Plains underwriting approval, if the underlying real estate collateral is sold prior to maturity and the buyer perceives value in the existing loan terms, the buyer can assume the interest rate for the remaining term.
  3. Interest Rate Lock-in: Long-term fixed interest rates can be locked on day one of a construction loan, and lengthy interest-only payment periods are available.
  4. Minimum Documentation: State Bank of Cross Plains long-term loans follow standard closing process, documents, and ongoing servicing. A short provision is added to our standard mortgage document explaining the role of the financial intermediary. An easily understood rate conversion agreement is signed to lock in the long-term fixed interest rate, and includes possible prepayment scenarios. All ongoing payments and interactions are with State Bank of Cross Plains.


"Make whole" prepayment calculations and possible scenarios are clearly defined and portrayed prior to the initial closing. Partial prepayments are permitted, but must be at least $100,000 and will be subject to those prepayment calculations. In addition to the previously mentioned rate portability and loan assumability, additional prepayment options include:

  • Borrower RECEIVES prepayment fee (if rates have increased from the date of closing)
  • Borrower pays fee (If rates have decreased from the date of closing)

Minimum Requirements

The basic requirements to qualify for a State Bank of Cross Plains long-term loan include:

  • Minimum loan amount of $750,000
  • Standard loan-to-value guidelines, meaning the bank will finance up to 75% to 80% of the total project cost
  • Borrowers (i.e., businesses) must demonstrate a minimum net worth of $1 million (based on GAAP without adjustment, including both hard and soft assets) OR the owner(s) of the borrower (i.e., business) must demonstrate a minimum net worth of $1 million
  • A standard stabilized minimum project debt service coverage ratio of 1.20X (projected and global cash flow may be used as evidence)
While long-term loans are not new, the current rate environment, along with these ideal loan products, makes them particularly appealing right now.

For more information about the State Bank of Cross Plains long-term loan program, contact me at the Madison Loan Production Office at 608-826-3519.

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