Appraisal Example for Business Loan > $1 MM

What would be an example of a business loan for $1 MM or less that is not dependent on the sale of, or rental income derived from, real estate as the primary source of repayment for which a certified/licensed appraisal is NOT needed?

I am unsure what they mean by this.

If the repayment of the loan is going to be from the sale of the property that is currently for sale. If collateral is an apartment complex that is repaid from rents. If it is a strip shopping mall and payment is made from the rents.

So 'If collateral is an apartment complex that is repaid from rents. If it is a strip shopping mall and payment is made from the rents', then I do NOT need an appraisal? or I do need an appraisal?

You definitely need one if the loan transaction amoount exceeds $250K. A situation where an evaluation would be acceptable would be for a loan under $1 million, in which it's to a business. The owner/user might occupy a building that they purchase, but the debt service is generated from the business revenue, not from rental income.

That is correct. The business loan exemption is for a loan secured by real estate but the cash flow to service the debt is NOT derived from sale or lease of the real estate (it is owner occupied, not an investment property). An example would be a loan to purchase or refinance a property used as a law office, or machine shop, or small hardware store. The risk is to the success of the business, not to the whims of the real estate market.

Thanks Kaybee for the detailed answer....and to the others as well for your input!

There is a more detailed explanation and some examples in OCC Bulletin 94-37b on page 18 "Real Estate- Secured Business Loans of $1 million or less. One item that should be of note is that in the original proposal it was going to exempt "business loans that were not dependent on sale of, or rental income derived from, the real estate taken as collateral as the primary source of repayment."

The final rule narrowed the scope by changing the exemption to "business loans that were not dependent on sale of, or rental income derived from, real estate as the primary source of repayment."