Tips for Securing a Commercial Real Estate Loan

Securing a commercial real estate loan can be a pivotal step in expanding your business, investing in property, or achieving various financial objectives. However, the process can often be complex and overwhelming. Here are seven tips to help you navigate and secure a commercial real estate loan effectively.

Before diving into the loan application process, it's important to have a clear understanding of your financial needs and objectives. Ask yourself the following questions:

• What is the purpose of the loan (e.g., property purchase, refinancing, renovation, expansion)?
• How much funding do you require, and for how long?
• What type of commercial property are you looking to finance?

Once you have a clear picture of your requirements, do your homework by exploring the different loan options available from various lenders, including traditional banks, credit unions, and specialized commercial lenders.

A well-crafted business plan when applying for a commercial real estate loan is key. There are free templates online to help you get started.

Your business plan should outline your business history, including financial performance and projections. Provide details of the commercial property you intend to purchase or use as collateral, the purpose of the loan and how it will benefit your business. A good plan will also show your repayment strategy, including projected cash flows.

A detailed business plan not only demonstrates your preparedness but also provides lenders with a clear understanding of your request, the business's viability and growth potential.

3. Gather Necessary Documentation

Commercial real estate lenders typically require extensive documentation to assess your loan application. Prepare the following documents in advance:

• Borrowing entity documentation (if applicable) such as Articles of Incorporation/Organization.
• Financial statements (balance sheet, income statement, cash flow statement).
• Tax returns for the business and any principal owners. (It is typical for a lender to request complete copies of the past 3 years of tax returns).
• Debt schedule of all your existing debt.
• Any existing property appraisal, survey, owner’s title policy, and environmental reports (if applicable).
• Business licenses and permits.
• Personal financial statements for all principal owners. (signed and recently dated).

Having these documents organized and ready can streamline the loan approval process and demonstrate your financial stability and creditworthiness.

4. Evaluate and Improve Your Creditworthiness

Your creditworthiness plays a significant role in securing favorable loan terms. Before applying for a commercial real estate loan, review your credit report and take steps to improve your credit score if necessary. Examples are:

• Pay down existing debt and resolve any outstanding issues.
• Correct any errors on your credit report promptly.
• Maintain a healthy credit utilization ratio (ideally below 30%).
• Establish a solid payment history.

A strong credit profile enhances your chances of securing competitive interest rates and favorable loan terms.

5. Consider Collateral and Down Payment

Commercial real estate loans often require collateral, such as the property being financed or other business assets.

Additionally, be prepared to provide a down payment, which typically ranges from 10% to 35% of the property's purchase price. Saving for a substantial down payment demonstrates your commitment and reduces the lender's risk, potentially improving your loan terms.

The amount of down payment is typically determined by the collateral (property) type, the specific loan program you are requesting (such as a traditional commercial loan or Small Business Administration (SBA) product), and if the property is to be owner occupied or an investment.

6. Shop Around for Lenders

Don't settle for the first loan offer you receive. Instead, shop around and compare loan terms from multiple lenders. Consider factors such as:

• Interest rates (fixed vs. variable).
• Does your lender offer a commercial real estate “Buy Now, Refi Later” program?
• Loan terms (length of repayment, amortization period).
• Fees and closing costs.
• Lender's reputation and customer service.

Obtaining quotes from different lenders allows you to negotiate more effectively and find a loan that best suits your financial needs and objectives.

7. Engage with an Experienced Commercial Real Estate Advisor

Navigating the complexities of commercial real estate financing can be challenging. Consider seeking guidance from a reputable commercial real estate expert who specializes in commercial loans. An experienced advisor can provide valuable insights, help you understand your options, and negotiate on your behalf, improving your chances of securing a favorable loan.

The Commercial Lenders at Crews Bank & Trust want help you in securing your loan. Let’s set up some time to discuss your needs.

Loans subject to credit approval.