How to Get a Commercial Real Estate Loan

A commercial real estate loan is a type of loan that is associated with purchasing or renovating commercial properties. So, if you are thinking of investing in your commercial real estate, then consider taking a loan. But, make sure you are taking the loan from a preferable source and follow the requirements that they ask. To know terms and procedures, follow this guide:

Table of Contents

What Is Commercial Real Estate Loan?

To understand commercial real estate loans, you have to understand the concept of commercial real estate first. Well, it’s a type of real estate that is used only for business purposes. For example, assume you are operating your business through an office space or retail store, so you can say you are working out of the commercial real estate.

How Does the Loan Work?

Before you understand the mechanism behind a commercial real estate loan, you need to know what a “lien” is. The lien is a legal right of the property owner given to the creditor that serves as a guarantee for the repayment of the commercial real estate loan. If the owner fails to repay the debt, then the creditor will seize the asset that is secured by the lien.

How to Get the Loan?

You will obviously get your loan from the bank or lender, right. Now, they both require and look at three things before granting the loans, which are as follows:

Business Finances

The loans require scrutiny mortgages rather than residential. Now, insignificant businesses are risky, and many people don’t succeed in the end. So, to be sure, your lender will take a look at your business book to verify the business has the potential cash flow for repaying the loan.

Personal Finances

It’s a fact that minor companies are controlled by the owner or some partners. Now, lenders or banks will check your personal finance details before granting loans. They are going to check your history and personal credit score to make sure you had no financial issues in the past, like foreclosures, defaults, court judgments, tax liens, and more. (Special Note: A low personal credit score will harm your company’s chance of getting a commercial real estate loan.

Property Characteristics

Your property will be attached with a lien so that lender can seize the property if you fail to repay the loan. To qualify for the loan, your business will require occupying at least 51% of the building. If not, then it’s an investment property loan that is suitable for rental property. The properties that are qualified for the loan are commercial buildings, a warehouse, a storefront, or a lab.

Requirements for Loan Application Process

To get the loan, you must have to make sure you meet these qualifications:

Tax returns of five years.
Business owners or partners credit reports.
Cash flows for the life of the loan.
State certification as a limited liability body or a corporation.
Property’s third-party appraisal.
A business plan that shows how you will use the property with an explanation of the management expertise of the company.
Business books, financial reports, and records for up to five years.

Conclusion

I hope the above guide will help you a lot to get a commercial real estate loan. But, you must follow the requirement part carefully so that your application meets the requirements properly. Otherwise, you will be able to get a loan for your business.