Whether you’re buying commercial property as an investment or for your business, it may become necessary for you to obtain a commercial loan, unless you have enough capital to cover the entire purchase price.
There are an abundance of banks, brokers, and even web services that offer commercial real estate loans. This can be a confusing process to find the best source for your new loan. Working with an experienced mortgage broker can lessen the burden on you, and save you significant time and money.
The broker will assist and coach during this process to successfully get the best loan to meet your financial goals. He will work with (and for you) to research the best loan programs and will be your intermediary once a lender and program is selected. To streamline this process, here are a few items you should be aware of as you get started to research a commercial loan.
How much down payment do I need (or “equity” in the deal)?
It’s extremely rare to secure a commercial real estate loan without some of your “own skin in the deal.” The lender obviously wants to know you’re serious about holding onto the property and the best way for them to guarantee that is based on how much of your own money is infused in the transaction. Don’t be surprised if you’re expected to put upwards of 25 – 35% down to secure a competitive loan.
How do I determine the performance of the property?
When acquiring an investment property, you must determine if the property is generating adequate income make loan payments. The lender wants to know how the property has performed from an income standpoint the past several years, and how the property can be expected to perform in the future. Depending on the property’s performance, the lender may want you to tell a better “story” as to how you’re going to get this property to operate better (i.e., produce more income). Historical and Pro forma Operating Statements (investment property only) for 2 -3 years will be needed to make this determination. Your mortgage broker will then analyze the numbers to make sure they are a good fit the loan program you are seeking. Each property comes with its own special nuances, which often dictate lenders asking for additional information for them to even consider making the loan. However, you should, at the least, plan on having the aforementioned information.
What about my Business Plan, Experience and Strength
When you try and secure a commercial real estate loan for a property or business, you’ll run into questions from the lender about the strength of the borrower and his experience level. The lender will want to see your strength and global cash flow. The mortgage broker can provide you a blank Personal Financial Statement to help you show your various accounts and calculate your net worth. They will also want to know that you’re capable of running that type of business, so a resume will be helpful along with a schedule of the real estate you currently own. They’ll want to know that there’s a history of generating the types of revenues and profits that will enable you, the borrower, to make your monthly loan payment. Be prepared to show three years of business and personal tax returns.
How long will it take to get a loan?
Commercial real estate loans can take a bit longer to underwrite than the average residential loan so you should expect it to take anywhere from 45 days on the low end all the way up to (and sometimes beyond depending on the complexity of the deal) 120 days. Many times the process is slowed down by the borrowers inability to provide the documents requested by the lender. Your promptness will go a long way to move the loan forward smoothly.
Getting a commercial real estate loan is not something you do every day, but that is exactly what an experienced broker does every day all day. He will make sure you get the loan you get works for you and for the property. He will aggressively negotiate for the right deal for your situation with the best lender. Working with an experienced commercial loan broker will help you save time and get you the best loan program to meet your financial goals.