Whether your business wants to set up a new store or warehouse or you need to expand your existing facilities, a commercial real estate loan can provide the required funding. However, the process of securing a commercial real estate loan can be complicated. From choosing the right lender to suit your objectives to gathering documents and awaiting approval, there are many steps involved in helping your company grow with this type of financing.
Here is a closer look at how to obtain a commercial real estate loan.
Outline Your Business’s Goals
It is important to establish your goals so you can find a lender that can help you meet them. Different lenders will offer different terms and rates, and some may not be a good fit for your organization.
Here are some points to keep in mind when determining your business’s goals:
- What the money is needed for
- How much money is required
- Whether a short or long-term loan is needed
- The organizations current financial condition
- The amount of collateral available to put up for the loan
- How long it will take to repay the loan
This information can prove useful when discussing your needs with different lenders and comparing terms across lenders.
Choose and Compare Lenders
There are several providers of commercial real estate loans. Here is a brief overview of some of the most common sources of these loans.
Banks
Community, regional, and national banks are a popular provider of commercial real estate loans. They offer a range of long-term financing options with reasonable interest rates. However, their stringent requirements to qualify for a loan can make it difficult for those with less-than-perfect credit to obtain financing this way.
Hard Money Lenders
Hard money lenders provide short-term loans that can be used for obtaining property that does not yet qualify for long-term financing. It can be used for securing a good deal on a commercial site or making improvements to a property before applying for a mortgage.
Online Lenders
Online lenders generally have a quicker and less stringent underwriting process than banks for commercial real estate loans, making them a good choice for those with imperfect credit scores.
Once you have reached out to the lenders that meet your needs, you will need to look carefully at the offers you receive, comparing the type of loan, the rate, and the requirements for applying.
Begin the Application
After choosing a lender, you will start the application process. This is often one of the longest steps in obtaining a commercial real estate loan.
Be prepared to provide financial information, supporting documents, and details about the property the loan will be used to purchase. This will be considered by the lender in determining whether to extend an official loan offer. The lender will need detailed documentation to decide whether the construction project or real estate purchase is a worthwhile investment on their part.
The amount of time it takes to review the application varies by lender, with national banks often taking longer than regional ones and nonbank lenders.
You will need to meet a series of requirements to be approved. Here is a look at some of the typical requirements for obtaining commercial loans.
Real Estate Loans
To obtain a standard real estate loan, the company and applicant will need a good personal credit score, backed by a dependable financial history. The business needs sufficient net operating income to cover its loan payments and must provide financial records such as cash flow projections, tax returns, reports, and a business plan. The business must be structured as a corporation or limited liability company to qualify.
Construction Loans
When applying for a commercial construction loan, many of the same requirements for a commercial real estate loan must be met. In addition, you will be asked to present project plans, performance projections for the building, and estimates from contractors.
Collateral
In most commercial real estate loans, the property itself will serve as collateral. However, in some cases, the business owner may be asked for a commercial guarantee, which means they pledge personal responsibility for paying the loan back should the business default.
Companies whose financials or credit scores do not meet a certain threshold may be asked to provide additional collateral. For some businesses, accounts receivable may be used for this purpose. Retail stores and other product-based businesses may offer their current inventory as collateral.
Schedule an Appointment With the Commercial Real Estate Loan Specialists at Woodsboro Bank
Commercial real estate is a major investment, and at Woodsboro Bank, our team can provide personalized guidance to help you find the right financing to meet your needs. Contact us today to schedule an appointment with a commercial real estate loan professional.