Do you know the process for applying for commercial loans and how your creditworthiness will be determined? Having all of the facts can be the difference between a successful application and a rejection.
Because of the huge losses that many commercial lenders suffered during the recent recession, it is much tougher to get a commercial loan. If you are considering applying for a loan than you need to understand what the criteria are for lenders and what you must demonstrate to be considered a good risk.
Your credit is a major factor in qualifying for a loan. The lenders are looking for good credit, which means a score of at least 680 but 700 or up is going to increase your chances of getting the loan. If your credit is less than perfect, you are not totally out of luck, there are other options such as non-prime lenders and hard money commercial mortgage companies who are willing to lend to those with a lesser credit score. But understand that those loans are going to cost you more in the long run.
The next concern for the bank is your ability to repay the money that you are borrowing. Very simply put, they are looking at the cash flow that you have with your business. You are going to need to show not only what you are making but also what your operating expenses are and any other debt that you might be carrying. In short, you need to prove that you can afford to repay the loan and not just say that you can. Supporting your request and income claim with solid documentation is a must.
The value of commercial real estate has been what most would consider very volatile in the past few years. The value has dropped drastically in some areas and on some types of properties. For this reason, banks are less inclined to offer loans for a large percentage of the value of the property. In the past 75% of the property value was not an unacceptable request and some lenders would even go as high as 80% but those days are gone. Currently 65% is a fair expectation and that could drop to even below 60% in some cases. So having better collateral than you needed in the past is helpful when you are seeking a commercial loan.
Knowing these three key factors and having your documentation in order is a good first step in securing a loan. Another important item to remember is that there are many lenders out there for you to work with. If you apply to one and are rejected, don’t give up. There are other options and you might even find that in a short time, that same bank that rejected your request could be willing to offer you a loan. This happens often when a bank determines that their lending regulations are too stringent and they are not writing enough loans.
So keep working on building your credit score, keep operating costs as streamlined as possible and search for a way to increase the collateral that you previously offered. Understanding the information that is used to determine creditworthiness for commercial loans will make the process of preparing and applying for a loan less stressful so that you can apply with confidence and leave with the loan that you need to grow your business.
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.