If you are a business owner, you will most likely need to purchase a commercial property for setting up your new facility or expanding the existing one. It is probably the place where you will be constructing your office, store, or warehouse. For small businesses, this is considered a major commitment. Usually, it has to be backed up by a commercial real estate loan. In some ways, it is just the same as a residential mortgage obtained for business property. Sometimes accessing this type of loan will greatly depend on various factors which differ depending on your commercial finance lenders. Fortunately, businesses can find some programs in the Small Business Administration (SBA), which can assure commercial real estate loans.
How to Obtain a Commercial Real Estate Loan
Typically, the major purpose of commercial real estate loans is for purchasing or renovating the commercial property. One of the requirements for lenders is that the business owner should occupy the property. It means that your business must occupy at least 51% of the property. In obtaining a commercial real estate loan, you will have to choose what type of commercial loan you require. Afterwards, you can narrow down your choices for your lender. Most likely, your decision will depend on the business and the property.
What are the Requirements of the Lenders?
Before your small business can be granted a commercial loan, you have to comply with three sets of requirements. These requirements are related to your finances, the financial status of your business, and the features of the property.
Typically, small companies are managed by the owner or a few partners. Commercial lenders and banks will usually do some background check on your finances, such as your credit score and history. They will verify if you are having some financial issues in the past, such as tax liens, defaults, foreclosures, court judgments, etc. In case you have a low personal credit score, this could likely affect your chance of getting your commercial loan approved.
Financial Status of Your Business
Compared to residential mortgages, commercial real estate loans are more scrutinized by lenders. It is because small businesses are quite risky. Commercial lenders and banks will closely examine your books to determine if your business can repay the loan.
Commercial finance lenders will also review the credit score of your business. It can help them determine the commercial loan and term that is appropriate for you. It includes the down payment, payback period and interest rate that will be applied. For a sole proprietorship, a real estate loan is regarded as personal rather than commercial. In other words, you are putting your wealth at risk in the event of a default.
What are the Features of the Property?
The property that you purchased using your loan will be considered as collateral. It carries a lien to the property. It means that the lender can seize your property if you miss your repayment. You will only be qualified for a commercial real estate loan if your business will occupy at least 51% of the property. If not, you should apply for an investment property loan intended for rental properties.
Knowing the different factors to consider in getting a commercial real estate loan can help you gain more information to make a well-informed decision.