5 Tips To Qualify For A Commercial Real Estate Loan

Getting a loan or mortgage for a house or any residential property is relatively straightforward. With the right strategy and, of course, a good small business credit score, you can easily breeze through the entire application process.

However, if you plan on applying for a mortgage on a commercial building, such as hotels, apartments, retail stores, or offices, you’re bound to stumble upon several issues. For one, apart from having good credit, you must also show that you’re capable of repaying the loan. In some cases, they may even ask you for collateral, such as a vehicle, house, and other investments, such as stocks, bonds, and shares. Of course, proving good credit, repayment capabilities and collateral can reduce the chance of loan application rejection.

If you want to know more about this particular topic, you can read the full info here. Regardless, getting a mortgage for a commercial property will be tricky, but that’s why you’re here.

Below are five tips to maximize your chances of qualifying for a commercial real estate loan.

Find A Less Expensive Property

When giving out commercial real estate loans, lenders require that the enterprise has a good credit score, collateral, and, most importantly, the capacity to pay.

For that reason, if you’re applying for a loan on a rather luxurious property, lenders would need to be stricter with your request. If you want to increase your chances, perhaps the easiest way is to look for less expensive properties. Doing so essentially lowers the bar in terms of capacity to pay, making it more viable if your finances are currently in the red.

Make Sure You And Your Partners Have Good Credit Score

Much like any other type of financing, if you want to maximize your chances of success, your best bet is to improve your credit score. A credit score is a measurement of a person’s trustworthiness when it comes to finances. It ranges from 300–850. The higher it is, the more likely lenders are to trust you, increasing your chances of qualifying for loans.

Here are several ways to improve your credit score:

  • Paying your bills on time
  • Requesting for a higher credit limit
  • Keep your credit card balance low
  • Resolving credit report discrepancies

Also, note that lenders would often look at your credit score and that of your partners. So, it’s advisable to give your partner a heads up so they can take steps to improve their score prior to the application.

Prepare The Necessary Paperwork In Advance

A huge part of the loan application process is getting on the good side of the lender, and what’s a better way of doing that than by making their job easier. While the application process is usually slow and tedious, you can speed it up a bit if you prepare the necessary paperwork in advance. After all, they’ll ask you for it anyway, so why not have it ready?

Typically, lenders and banks will require you to provide the following documentation:

  • Financial reports
  • Bank statements for the past few months
  • Proof of ownership on collaterals
  • Records of tax returns
  • Business plan

Take Your Time Selecting A Lender  

Not all lenders have similar offers. Some may have outrageously high-interest rates, while others offer low-interest rates but high down payments. Regardless, choosing either one will result in different outcomes. So, unless you’re in dire need of commercial space, you should take your time selecting a business lender. But what are your choices?

Here are two main types of lenders offering commercial real estate loans:

  • Banks: Getting a loan from a bank is the most reliable option. The down payment and interest rate are both reasonable, and you can potentially get some discounts if you’re an existing customer. Perhaps the only downside is that the process is relatively slower than other options.
  • Commercial Lenders: You may also find lenders that aren’t part of any financial institution. They are also known as private commercial real estate lenders. While their rates are typically higher than banks, their process is much faster and less strict. This is perfect if you don’t mind a slightly higher rate in exchange for getting approved more quickly.

Offer A Deal Favorable To The Lender

When applying for a commercial real estate loan, or any other type of loan for that matter, you have to remember that the main objective of the lender is to earn profits from that transaction. The greater their potential profit, the more likely they are to approve your request.

With that said, you can try breaking the status quo by offering them a greater deal than what they have now. If that’s your strategy, you can choose one of two options: you either agree to a higher interest rate or pay a larger down payment. Either way, the lender would most likely change their mind in your favor if you make this move.

Of course, this tip is only applicable if you can afford any extra expenses. But then again, a business can be unpredictable, so a larger down payment is better than paying a higher interest rate in the long run.

While it’s true that the first step to financing your business is to get a commercial real estate loan, you have to remember that it’s not the only step of the process. Once you qualify for the loan, you’ll have to worry about the monthly payments and interest rate. Hence, you should take your time getting a loan instead of taking up even the most unfavorable offers from lenders.

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