Five Ways To Improve Your Chances Of Getting A Commercial Real Estate Loan

The right loan makes all the difference when investing in commercial properties.

Securing a loan with a good interest rate can enable you to afford a property that otherwise would have been far out of reach. However, before you can get the capital you need, your lender has to determine whether you qualify for a loan.

Your lender will have much more confidence in you if you come prepared. Plus, it’ll greatly improve your chances of getting the loan you want. This could make all the difference in your next commercial real estate transaction.

Here are five lender-approved ways to improve your chances of getting the commercial real estate loan you’re looking for.

1. Remove Any Obstacles In Your Path

Poor credit, debt and many other factors can make it difficult to get a real estate loan. If your business’s credit score and debt service coverage ratio don’t look great, you can consider paying off existing debt, improving cash flow and taking steps to increase your credit score. However, this takes time, and not everyone has that.

To quickly improve your chances, you’ll need to make the deal seem less risky in the eyes of your lender. Adding another investor or cosigner is one way to get the credibility you need to secure a loan. You can also pledge additional collateral to reduce the lender’s risk and therefore improve your chance of getting approved. Additionally, if you’re comfortable paying a larger down payment or a higher interest rate, you’ll be more likely to get financing.

2. Keep Detailed Records

If you’re a commercial real estate owner who finds it difficult to keep all your information organized, rest assured that you’re not alone. There’s a lot of paperwork involved, and it can be difficult to keep it all straight. However, it’s very important to document everything related to your commercial real estate investments, especially when it comes to finances. In addition to keeping records, it’s also helpful to organize them in a way that makes it easy to find information at a moment’s notice.

If you don’t have all the records your lender asks for or if you present them in a disorganized way, your lender may be more cautious about approving the loan. This is true even if your finances are in good shape.

3. Know What Lenders Are Looking For

Lenders take many factors into account when determining whether or not you qualify for a loan. They will need to scrutinize your business’s financial history and get a full picture of all your assets. They’ll take a close look at your cash flow to make sure it’s enough to comfortably pay off the loan. Additionally, they may need to look at your personal finances to see if you’ve had any financial problems that could pose a risk. If there are multiple investors involved, the lender will need information from all participating partners.

In addition to financials, they’ll also need information about the property itself, since the property will act as collateral for the loan. This may include information about the size and scope of any plans for development, the current rent roll, the length of leases and types of tenants, cash flow history and projected operating budgets.

4. Gather Your Info And Financials Ahead Of Time

When you have an idea of what your lender will need, you can take the opportunity to gather things ahead of time. Ensure that you have everything organized and easily accessible. This way, you can provide the information immediately when they ask for it. Lenders deal with disorganized business owners every day. They will be impressed if you’re ready to hand them all your information from the start.

5. Communicate Promptly And Succinctly

Oftentimes, even if you thought you provided everything they could possibly need, your lender will ask for additional information throughout the approval process. When this happens, don’t leave them hanging. Communicate openly and honestly.

In a best-case scenario, you’ll have the info they need already compiled and it won’t take you long to track it down and send it over. But if you need a day or two to pull it together, or if you don’t have access to the specific metrics they asked for, let them know. Simple communication can go a long way in earning your lender’s confidence.

As you can see, organization is key. With these tips, you’ll appear professional and prepared when you apply for a commercial real estate loan.


Source: Forbes