If you want to buy a piece of commercial real estate, there’s much to learn. Chief among your concerns should be securing a loan. Locking one in doesn’t have to be a mystery. Here’s some information that’s bound to enlighten you.
What Lenders Measure
There are three areas banks investigate after you apply. One is your business finances. As the operator of a startup, backing your vision is inherently risky. Financial representatives want to scrutinize your operation and make sure you have enough cash flow activity to pay back the loan. Also, expect lenders to review your credit score. The better it is, the more agreeable their terms are likely to be.
Your personal finances are another factor. It’s considered a warning sign if there’s evidence of tax liens, foreclosures, or defaults. The discovery of fiscal hiccups might result in your application being rejected.
Finally, real estate lenders want to know about the properties that borrowers are looking to buy. Since the real estate you desire becomes collateral under the agreement, its worth directly impacts how much money is offered.
To qualify for a loan, your business must occupy at least 51% of the building.
What Applications Require
Getting a commercial real estate loan takes time. The more prepared you are from the start, the faster the process will be. Before meeting with a lending representative, collect your business tax returns, financial records, at least three months of bank statements, and a third-party property appraisal. There’s also a good chance you’ll be asked for your official business plan, so bring that to your meeting, too.
Note that hard money loans typically do not require the same level of documentation, and the application ordeal tends to be quick. That said, they have serious disadvantages that traditional loans do not, such as less favorable rates and more aggressive repayment schedules.
What Improves Odds of Approval
There are no guarantees your loan request will be approved. However, there are actions that might better your chances. Take measures to improve your credit score. Paying off existing debt sometimes helps. If you have additional collateral, use it as leverage. Involving an investor or a cosigner is another tactic. Choosing a less expensive space or agreeing to a higher interest rate will further make you a more acceptable candidate.
Commercial real estate loans are necessary for any business owner wanting to close on a property. Understanding how they work and what spurs lenders into approving borrowers will help you realize your dreams.
