How to Qualify for Commercial Loans

There are many requirements that must be met before qualifying for commercial loans. Learn what banks are looking for, and how you can increase your chances of eligibility.

3page_img3-bigIn times of economic recession, banks and lenders can be a lot less lenient on the loans they will underwrite. If you’re not sure if you’ll qualify, there are three key expectations that underwriters will review before considering a loan: your credit, your repayment ability and your collateral.

First, a good credit score of at least 680 or higher is required. If you have a score of over 700, that is ideal. However, those without those high credit scores can still sometimes be approved. Next, the bank looks at the applicant’s capacity for repayment of the loan. Usually this means defining the cash flow of the property’s net income, which should exceed the mortgage payment by around 25 to 45 percent. Finally, collateral is expected; it is typical to expect a conventional commercial loan to fall between 50 and 70 percent loan to value.

Beyond these three components, the environment of the economy is important when it comes to qualifying. Some banks may be willing to accept a lower credit score or give a higher loan to value percentage. Some are likely to give a higher loan to value amount if the deal is very strong in the case of a property purchase or if you have lots of liquid assets. Sometimes, it is simply about timing.

If One Bank Rejects My Commercial Loan, Will I Qualify At Another?

There are thousands of banks across the country. Each has their own specific set of requirements to be met in terms of credit score, repayment capacity and collateral, and each has times in which it might have become too liquid, so it needs to loosen up its moneys. Casting a wide net to many banks is a good idea.

Before you apply for your commercial loan, make sure your credit, repayment capacity and collateral are in order to ensure the best chances of your loan being approved — but don’t get discouraged if you don’t qualify right away.

Do your research on the banks and lenders before you approach them with your request so you know a little bit about what is expected. Be as prepared as possible with a solid business plan, reasonable need for your loan request, and preparation of items such as income tax returns, financial statements, bank statements, and legal documents like articles of incorporation. Banks have to protect their assets, so even if your ducks are all in a row, so to speak, that doesn’t guarantee loan approval. They may see your loan as too risky or consider the amount of debt you have to be too much. However, there are options such as Wall Street nonprime lenders and commercial mortgage companies that can offer subprime commercial loans.

Dennis Dahlberg
Level 4 Funding LLC  Private Hard Money Lender
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177 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.

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