How To Apply For A Commercial Real Estate Loan

Author: Woodsboro Bank

Categories: Blog

If you are purchasing a new commercial property, you will likely need a commercial real estate loan to finance it regardless of whether you want to start a new facility or expand your current one. Much like a mortgage loan for a home, there is an in-depth application process that lenders use to determine your ability to pay the loan back. Here is a closer look at how to apply for a commercial real estate loan.

Determine How the Loan Will Be Used

financial budgeting for commercial real estate loan The first step in applying for a commercial real estate loan is determining what the loan is going to be used for. Many commercial real estate loans are acquired to purchase an office building.

Additionally, these loans can also be used to remodel an existing office space, in which case you will need a clear vision of your desired end results. If you are seeking a commercial real estate loan for building new multifamily housing, it is important to have a plan for the properties and identify the desired land and a potential contractor before you begin the application process.

Not only does this information help you determine which type of commercial real estate loan to obtain, but it also facilitates the approval process when your lender determines that you have a serious and measured plan for how the funds will be used.

Choose the Type of Commercial Real Estate Loan You Need

Once you have a plan for the funds, you can determine the right type of commercial real estate financing to meet your needs. One of the most common approaches is a purchase loan that is used to cover the property. However, you may also need a construction loan if you intend to build a property; this can later be refinanced once construction has been completed.

Refinance loans, meanwhile, work much like residential mortgage refinances and allow you to lock in lower rates and reduce monthly payments on your commercial real estate. There are also SBA loans backed by the Small Business Administration with lower rates that certain types of borrowers may be eligible for, as well as hard money loans that can help real estate investors who wish to flip properties.

Choose Your Commercial Real Estate Lender

The next step in the application process is finding the right commercial lender to meet your needs and learning more about their application process. It is important to consider that banks and credit unions have different lending policies, and you will need to meet their requirements to be eligible for a loan.

Commercial lenders evaluate your business credit score, personal credit history, coverage and debt-to-income ratios, and annual revenue. They will also consider various factors of the property that is being financed, including its purchase price, type, and loan-to-value ratio, along with any applicable rental income.

These requirements are important to consider when selecting a commercial lender as you can avoid applying with lenders that are unlikely to approve you.

Prepare the Application

Once you have met with the loan officer at a lending institution or reviewed the requirements listed on their website, it is time to begin completing the application. Although the specifics vary depending on the lender, you will generally be required to provide supporting documentation such as personal and business tax returns, legal documentation, your company’s balance sheet, and a business plan.

Your lender may request additional documents in the application or approval process. There may be significant back and forth as you work through the application process, and many people consider this to be one of the most time-consuming aspects of the commercial funding process. Complying with your lender’s requests as quickly and accurately as possible can speed up the approval process.

Closing

Once your application has been approved, you will be given a date to close on the loan so you can begin your commercial real estate project. This may take several weeks or months depending on the type of loan you are obtaining. For example, long-term financing such as SBA real estate loans may take a long time while short-term financing options such as hard money loans tend to be faster.

Reach Out to the Commercial Real Estate Loan Specialists at Woodsboro Bank

Purchasing commercial real estate is a major endeavor, and having knowledgeable and experienced guidance can make the process seamless. To find out more about applying for a commercial real estate loan, reach out to your local commercial banking team at Woodsboro Bank.