Buying a commercial property to build a new facility like an office, store, or warehouse is frequently financed with a business loan cash advance. This type of loan can be considered similar to a residential mortgage in some ways. Your access to this loan would depend on various factors, which vary from one lender to another. Commercial real estate lending is generally guaranteed by small business administration.
How To Obtain A Commercial Property Loan?
These loans are typically used to finance the purchase or renovation of commercial property properties. Lenders usually want the property to be owner-occupied, which means that your company must occupy 51% of the space at least. To opt for commercial property lending, you need to know the type of loan you want before narrowing your lender alternatives.
What Lenders Check For When Making A Decision?
Lenders often have three different requirement sets before providing a real estate loan to a small business. These documents relate to the
- Finance Of the Company
- Your Finances
- Property Characteristics
Real estate loans are often scrutinized thoroughly since the small businesses or enterprises are assumed to be risky, and a lot of them do not succeed. Commercial lenders and banks will examine all your money books to make sure that the company has adequate levels of cash influx to successfully repay the debt. They will also check your loan service coverage ratio. If your enterprise is entirely loan-free and you request to receive a $100,000 business loan cash advance, the lending company or person will require you to generate an operating income of $125,000 at least.
The lending authority will also check into the credit score of the company to find out if you are eligible. A minimum 155 credit score is needed for SBA.
The property that is being financed acts as the collateral. The lending authority adds a possession right to the estate, which authorizes the lender to conduct a seizure if the business loan is not repaid on time. You can apply for an investment property loan for the real estate to be eligible for a real estate loan. This is designed especially for loans on rental houses.
Hard Money Loans
If you go too hard, money lenders will typically base the loan on the property value, and they will give little to no reference to the creditworthiness or borrower. In this case, eligible buildings in storefronts, warehouses, labs, commercial buildings, et cetera. Single-family residences do not qualify. However, multifamily property may qualify if you run the business from there. You must also own 51% of the property.
In general, commercial real estate lending are available in a debt-to-value ratio manner. The loan-to-value ratio usually is 65 to 80%. For example, suppose the property has been appraised at $200,000, and lender takes 70% LTV. Thus, you will be expected to put up $60,000 to receive a loan amount of $140,000.
When you prepare your application for the commercial property lending process, make sure to include your business tax returns, bank statements of the past three months, financial reports, records, books, third-party property appraisals, et cetera.