Securing a good piece of real estate is essential when you have a business. However, any piece of property that catches your eye is sure to catch the eye of other business owners, making the competition fierce. In order to come out victorious, you must have your financing in order. This means you are ready to secure a commercial real estate loan.
Preparing for financing approval requires knowing what lenders will look at. Keep in mind that a commercial real estate loan is much different than a residential loan. For a commercial loan, the lender considers five different aspects of your finances.
Net Worth
Perhaps the most important factor and one of the very first things a lender will look at is your net worth. Lenders want to see that you have a net worth that is at least equal to the amount of the loan. If yours is greater, then that is even better. Do not count yourself out if it is not up to par, though. It is possible to balance it if you have enough income.
Income
You will have to show your net income. Lenders like to see a steady stream of money coming in. It is worth noting that debt-to-income ratio is not something lenders care about with this type of loan.
Liquidity
Lenders will also check into your cash flow. They want to see that you have money in savings and that even with the down payment on the loan, you will still have money in reserves. In general, try to have 10 to 20 percent of the loan in savings.
Experience
You should have previous ownership in commercial real estate. Lenders want to know that you have the experience necessary to manage and operate the property once you own it. It is helpful if you have experience or ownership now or in the past in different types of commercial properties.
Credit Score
Your credit score does factor in but probably not as much as you think. Lenders focus more on the money you have on hand than on your credit rating. However, you need to have at least a 600 score to avoid hassles.
Get these five areas in order before you apply for a commercial real estate loan to help increase your chances of an approval. Going into the meeting with a lender prepared will make you look better and help you get things off on the right foot.
