Getting a real estate commercial loan should be a simple process. You have to do your homework, know what you want, check the best alternatives, and understand what they have to offer. Here’s how to get a commercial loan in 5 simple steps:
#1 – Decide What Type of Loan You Need
There are many types of business loans on the market. Decide what real estate commercial loan to get before you start the application process. Most loans provide lump sums that you have to pay back with interest. They have various maximums, from zero to $5 million (SBA loans). Some loans are ideal for companies that want quick cash injections with short payback terms. Others are designed for long-term investments and accept longer payback terms (25 to 30 years). Other loans are designed for day-to-day expenses and work similarly to business lines of credit.
#2 – Do You Qualify to Get a Business Loan?
There are many lenders that offer business loans, but you won’t get approved if your documentation is poor and you have a bad financial record. Here’s how to know if you qualify for a commercial loan:
- your credit score – it has to be as high as possible; some lenders ask for a minimum of 160 (SBA has a minimum of 140);
- how long have you been in business – you have to be in business for at least two years if you want to get approved easily
- how much money do you make – your business has to be profitable; you should have a minimum annual revenue of $50,000, but it should be above $250,000 to show that you are competitive
#3 – How Much Can You Pay Back?
Pay attention to your business’s financial documents – how much can you afford to pay monthly if you get the loan? Your income should be 1.25 times your total expenses. For instance, if your business has an income of $20,000 per month, you can pay a maximum of $4,000. ($20,000 divided by 1.25 is $16,000, so you can pay $4,000 per month). Use an online calculator to determine how much money you can ask for.
#4 – Decide If You Want to Use Collateral
Most business loans are secured by collateral, such as a fixed asset (property or equipment). Lenders often require collateral, particularly for larger loans. Putting up collateral is risky but will improve your chances of getting approved. Make sure you use collateral to your advantage.
#5 – Compare Multiple Lenders
There is a huge variety of business loans on the market, coming from thousands of different lenders. Make sure to compare the offers and decide which is better for you. Pay attention to their terms, like interest rates, maximum amounts, payback duration, collateral, customer service, reviews, and other factors. Also, check how quickly the real estate commercial loan is approved – you may need the money faster than usual, so this should be an important factor for you.
Commercial real estate loans are key financial tools when starting a new real estate project. Pick the right loan to make your project idea a reality! Contact us here and we’ll help you pick the right type of funding for your project!