When you apply for a commercial real estate loan there will be certain things you will be expected to do or have in order to get approved.
When you apply for a job, there are steps you have to go through in order to get hired. Depending on what you are applying for, you will likely start with an application or resume, interview with someone, and provide proof that you can legally work in the United States.
Commercial real estate loans are no different. Just like a job, there is a process involved with getting approved for one and if you omit, leave out, or fail to meet certain standards you stand the risk of getting turned down.
So before applying for a loan, it helps to review many of the factors involved in approval.
Before a lender is going to approve your loan, they will likely require or ask that a property appraisal is conducted. They are going to want to know the current value of the property you plan on buying or using as collateral. It also helps the lender make sure they do not lend you too much.
Value is determined by examining the size of the property, its location, accessibility, and the condition of any buildings on it.
Down Payments for Commercial Real Estate Loans
You are applying for a commercial real estate loan because you don’t have enough to start your business on your own. However, lenders do not want to be the only one investing in your business. They will want to see that you will be putting down a down payment on the property before approving your loan. Depending on the lender, the down payment could be as much as 20 percent of the loan amount or as high as 30 or 40 percent. When you are talking about a loan in the hundreds of thousands or millions that can be a substantial amount of cash.
Credit Record for Commercial Real Estate Loans
When we are young, we don’t tend to think about our credit rating a whole lot. It doesn’t affect us in the short term so we can rationalize doing something that could damage it by telling ourselves ‘I’ll deal with it later.’ Except when later arrives and you’ve done nothing to fix the damage you suddenly find you can’t get approved for a loan.
It can’t hurt to check your score and rating before you apply. No matter what your score is, if there are things you can fix, it would be smart to go ahead and do so. It can only help your commercial real estate loan application get approved.
Debt Service Coverage Ratio for Commercial Real Estate Loan
A debt service coverage ratio is the ratio of the revenue your business is going to generate on a monthly basis to the monthly payment you will be expected to make on your loan. This ratio will help the lender figure out what payments you will be able to make.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.