How to Get a Commercial Real Estate Loan

A commercial real estate loan is used to finance the purchase of a commercial property. You can apply for the loan if you want to set up a new store, office, or property for sale. Access to funding for real estate investors depends on several factors. These factors can also vary depending on the source of the loan.

Commercial real estate loans can be used to buy, build or renovate a commercial property. The type of property is what will determine which type of loan is suitable for you.

What are the qualification requirements?

Before granting a real estate loan, lenders typically need you to meet three requirements. The requirements are related to your personal finances, property characteristics, and business financial situation.

Finances for businesses

Most small businesses are often considered risky investments for real estate lenders. They will therefore need to ensure that you have enough cash flow to repay the loan.

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Business credit score

The lender will also check your business’s credit score to gauge whether you qualify for the loan. The credit score will also determine the down payment needed and the interest rate you qualify for. But there are exceptions that allow businesses to obtain funding for real estate investors even with a lower credit score.

Personal finances

Banks and commercial lenders may also want to review your credit history and personal credit score before approving the loan. Your credit report will indicate if you have had any financial difficulties before. It shows issues like defaults, foreclosures, court judgments, and tax liens. Low personal credit scores could impact your chances of getting a commercial loan.

Types of loans for commercial properties

Hard-money loans

These are some of the hard money loans for real estate investors today. Hard-money lenders typically base loan approval exclusively on property value. They do not consider the borrower’s creditworthiness. Commercial buildings, shop fronts, warehouses, and laboratories are all eligible for these loans. But some types of properties won’t be eligible, such as owner-occupied single-family residences and live-work studios.

Bank loans

Banks offer commercial financing for different types of properties. You can qualify for a bank loan of up to $1 million. Banks offer good interest rates for their loans. You may also be eligible for discounts if you are a customer of the bank. Most banks also have options for long-term financing.

Commercial lenders

Non-bank finance companies also provide small and medium-sized commercial real estate loans. Commercial lenders tend to have higher rates than banks. But they can be the best loans for real estate investors who require financing immediately. Commercial loans have flexible requirements and this helps reduce the approval time. These loans also have lower closing costs and fees.

Conduit loans

These are pools of commercial loans that are sold to investors in a secondary market. Conduit lenders typically finance between $1 – $3 million dollar investments. The amortization is spread over a longer time period which lowers the monthly payments. However, you have to pay the remaining balance in one lump sum. Although social media can be an effective tool for informing clients about new items, it can often be perplexing.