If you are trying to get a commercial real estate loan, you may not realize how different it can be from obtaining a residential mortgage. In fact, it is typically harder to obtain a commercial real estate loan than a residential mortgage. Not sure what the lender will consider? Take a look at these factors to ensure that you have all the necessary information and characteristics.
If your business entity does not have a track record of creditworthiness, you may need to obtain some other type of guarantee for your loan. As an individual, you may need a higher FICO score than if you were trying to get another type of loan. Of course, this all depends on the lender and the type of loan you are looking for.
In addition to the cash flow of your business, you should make sure your individual finances are in order. If you have anything like defaults, tax liens, and foreclosures in your past, it could harm your chance of getting approved.
Debt-Service Coverage Ratio
Next, the lender will consider the debt-service coverage ratio. This ratio considers cash flow and the amortization period for the loan.
Additionally, you may need to provide collateral for your commercial loan. In most cases, the property itself is the collateral, but this means that the lender must consider the loan-to-value ratio. If this rate is too high, lenders may not provide financing.
So, What Do You Need?
Finally, you need to gather all your information to make sure that you bolster your chances of obtaining a loan. The best way to do this is to have all your information in order. To begin, make sure you have tax returns for the last few years. It is reasonable to have about five years of tax returns available.
In addition to tax returns, it is a good idea to have other documentation, including books, financial reports, and other business records. You should also have information like leases and your projected cash flow for the entire lifetime during which the loan will be available. Documentation of your status as an LLC or corporation is also helpful.
Of course, you should also obtain your credit reports for yourself, your business, and any partners or co-owners. It is also a good idea to bring a third-party appraisal of the property in question.
Obtaining a commercial real estate loan may sound difficult, but it can be worth it if you have the financial resources to follow through. Applying may feel like a process, but it does not have to be intimidating. Talk to a commercial real estate lender for more information.Share
13 January 2020
I always wanted to buy my own home and after saving enough money for a down payment, I decided that it was time. Before I started looking at houses, I talked with a loan officer about financing. I wanted to know how much money I could borrow so I could look at houses in that price range. I was very happy after my meeting at the loan company and I was ready to start house hunting. My name is Jarod Spangler and I'm now a homeowner. If you have the dream of owning your own home, I think you'll find my blog of help to you. I've documented my journey of saving money, securing a loan and purchasing a house. To help you become a homeowner too, I'm offering advice and tips of things that I've learned along the way.