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In order to secure a loan for their company’s property, applicants must meet certain requirements set by private commercial real estate lenders. The capacity of business owners to secure these funds makes all the difference for a company. As the owner of a small business, you need to know the requirements set by private real estate lenders in order to get needed capital. Then, you can obtain the commercial office space of your dreams. Nevertheless, securing these requirements can be tricky to understand. Keep reading as we breakdown private commercial real estate lenders requirements.
Controlling Stake In The Building
Before private commercial real estate lenders issue a loan, prove that you have a controlling stake in the building. This means you or your business are required to own at least 51% of the property that loan is being used for. The estate being financed by the loan is also used as collateral to secure it. Typically, a lender allows you to borrow 65-70% of the maximum property value. Additionally, if you do not control the building, then you should be applying for a loan on an investment property. In order to meet the requirements of private commercial real estate lenders, start by proving you own a controlling stake in the building.
Proof Of Personal Finances
All private commercial real estate lenders require proof of the stability of your personal finances. This includes proof on income as well as a satisfactory credit report. Lenders look for tax liens, past defaults, and previous foreclosures. Many small businesses have multiple owners, and lenders will regard the finances of each partner. Know that one low credit score, even if other partners have sufficient credit, could disqualify the entire business. Ensure that you provide proof of personal finances to private commercial real estate lenders when applying for a loan.
Adequate Business Finances
Additionally, private commercial real estate lenders conduct more thorough examination of your business’ finances. Private financial institutions look at your books to ensure that your business has satisfactory cash flow in order to make repayments. For this reason, every small business needs quality small business finances management processes in place. Also, the lender checks the business’ credit score to determine what rates, repayment period, and down payment are necessary. Finally, ensure that your business is in fact a limited liability company. Otherwise, the loan issued would be a personal one. This would leave your personal assets at risk in the event of a default. Provide private commercial real estate lenders with adequate business finances to prove your company is responsible enough to obtain a loan.
Basic Business Documentation
Similarly, provide private commercial real estate lenders with basic business documentation needed to secure a loan. This information includes your operating address, employer identification number, and the type of entity your business is. Additionally, supply lenders with your business licenses and permits necessary for operations. The reason for this is that lenders want assurance that you are running a legal business and that all of your information is up to date. Before you hand over these documents, scan through them to make sure they are all valid and unexpired. In order to obtain your loan, give private commercial real estate lenders the basic business documentation for your company.
Prepayment Agreement
Private commercial real estate lenders require that you agree to a prepayment clause before granting a loan. Believe it or not, many lenders put restrictions on your ability to repay the loan in full before its maturity date. This is because lenders want to maximize their potential yield on interest payments. Many lenders enforce this clause through prepayment penalties or interest guarantees. Basically, this means they are entitled to a specified percentage of the interest on your loan, even if it gets paid early. Prepayment agreements are identified within loan documents and can be negotiated. When using private commercial real estate lenders, prepare to sign a prepayment agreement.
Ongoing Documentation
Even following the purchase of your commercial property, there are many ongoing requirements business owners must comply with. Most commonly, investors can ask for ongoing doumentation to assess the stability and performance of your business. In many commercial real estate agreements, you may be required to turn over documents for credit check inspection, assessment of business stability, and analysis of commercial business insurance. These forms assess that your business is maintaining compliance, stable operations, and real estate payments. Depending on the structure of your real estate purchase, you may not be required to turn over specific documents. However, it is important to keep all required forms organized, and accessible in case you need to provide any proof for compliance purposes. Following the purchase of your business property, commercial lenders may require ongoing business documentation.
For small business owners, it is crucial that they know the requirements set by private commercial real estate lenders. You can find the best business loans available and not qualify for them if you do not meet the requirements. Before you apply, ensure that you have a controlling stake in the building you are taking the loan out for. Additionally, lenders require you to provide proof of your personal and business finances to show you are a responsible borrower. Be sure to provide lenders with basic business documentation such as a license and any permits associated with the company. Furthermore, be ready to sign a prepayment agreement so the lender can guarantee they will get the proper return on their loan. Follow this guide to ensure you meet all private commercial real estate lenders requirements.
