Learn How to Qualify for a Commercial Real Estate Loan

Learn How to Qualify for a Commercial Real Estate Loan

A commercial real estate loan is financing used to purchase property for your business. Lenders are particular about credit score, down payment, and the purpose of real estate financing when vetting applicants. Here is some basic information you should remember when applying for real estate financing.

Why Do People Apply for Commercial Real Estate Financing?

Many people are mistaken that commercial real estate loans are for investing in commercial real estate. However, these loans are mainly for financing the purchase or upgrades of a property that is being used for your business. In most cases, lenders use the property they are buying or improving as security for the loan.

A significant percentage of the property needs to be for business purposes. Therefore, you can lease out some of your property and leave the rest for the business. However, if a large share of the property is used for personal purposes, you will have to secure a separate loan.

The other instances when commercial real estate financing is suitable to include buying or renting storage for your inventory, buying an office for your business, and renovating, buying, or building a hotel that will be part of your business.

What Should You Consider Before Applying for a Loan?

One of the things that will affect your loan application is the cash flow your business generates. Lenders will compare your debts and expenses with your net operating income. Additionally, the value of the property in question is important. The lender will demand an appraisal to determine whether the property’s value is enough to justify the transaction.

Other factors borrowers consider include pre-payment penalties and repayment schedules. Pre-payment penalties will vary based on when the loan is cleared. Repayment schedules also vary depending on the type of loan. For example, a construction loan comes with a 24-36 month interest-only repayment period. Non-construction loans require amortized payments one month after closing.

Another thing borrowers should look into is tax returns. Many lenders require at least three recent years of business tax returns ready. You should also expect your lenders to review your credit history and ask you for guarantors.

A commercial real estate loan is a great way to finance your business expansion. If you are looking for affordable real estate loans, contact Toluca Lake Capital. We will take you through different options that match your specific purpose.