Acquiring the ideal commercial property can provide you with good rental return and capital returns than a residential property. Nevertheless, for those who are only starting to invest in commercial property, it can be daunting than spending on residential property.
If you plan to start your first physical location or widen your space, you’ll need funding for a commercial property loan. Like a house mortgage, you can use a commercial lending software to make a complete purchase, fund improvements on a space you own, or invest in equipment to grow your business. Despite the nature of this type of loan, it’s only suitable for business. It strikingly resembles a residential mortgage when it comes to the terms and structure but mostly depends on a few key factors specific to your business. If you want to learn more about the requirements you need to prepare when applying for a commercial property loan, look at here now.
The only concern is that these types of loans can be challenging to secure. It often takes more effort than your standard house loan.
Let’s check out these tips when applying for a commercial property loan below.
1. Determine How You’ll Use Your Loan
Before making a move, you’ve to decide what you need the loan for and how you’ll use it, whether to start a business or for business expansion purposes. Remember that even if you’re eager to obtain a property, your lender might not feel the same. Research further on the property and its area to convince the lender that it’s a good investment. However, be ready for the possibility that the lender might refuse to fund the property.
2. Select The Loan Type
Once you know what you’ll do with your loan, you can decide on the type of commercial property loan you need.
- Purchase loan is the right choice to buy property. This financing is available in significant loan amounts with longer repayment terms.
- A construction loan has a shorter repayment term that you can use for building.
- Refinance loan has a lower rate and monthly payments.
- Hard money loans are a suitable option for real estate investors planning to flip properties. You can obtain this loan from private lenders and have a higher interest rate and shorter terms.
- Some types of SBA real estate loans have low rates that make them ideal for real estate.
The loan term and rates will depend on the type of commercial financing you will select. Remember that the type of loan you’ll choose can limit your commercial lenders’ choices since most lenders offer specific types of commercial property loans.
3. Find The Right Commercial Lender
At this point, you can proceed in finding the right lender. However, finding a lender isn’t a simple process. Remember that banks and credit unions have strict lending protocols. With this in mind, you need to comply with specific qualifications to get funding. Expect commercial lenders to check these when assessing your creditworthiness:
- Personal credit history
- Yearly revenue
- Business credit score
- Debt-to-income ratio
- Coverage ratio
Remember that banks will also look at the property type, purchase price, loan-to-value ratio, operating statements, and rental income.
4. Prepare Your Loan Application
Various lenders will have varying application processes. You have to fill out several forms about yourself, your business, and the property in most cases. Once you complete the forms, you’ll submit supporting documents such as a business balance sheet, business and personal tax returns, business plan, and legal documentation.
Remember that the lender might require more documents during the application and approval process. The submission and requesting of documents are the reasons why the process can be a lengthy one. You must be patient. You should know that the faster you provide the lender what it asks for, the quicker you will get approval.
5. Close On Your Loan
Once you have approval, you can close on the loan and start on your commercial property project. Depending on the loan you’re applying for, this part will take some time. Short-term financing such as hard money loans is faster, while long-term funding can take weeks or even months.
Conclusion
Although a commercial property loan can be challenging to secure, being ready for the application process at the start can significantly help make the process easier to handle. Taking the necessary steps will go a long way in demonstrating that you’re taking the actions required to manage monthly loan payments. With the help of these valuable tips, it’ll make the application a hassle-free process.
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