Facts about Commercial Loans
Commercial underwriting guidelines
Commercial financnigis underwirten on a case by case basis. Every loan application is unique and evaluated on its own merits, but there are a few common criteria most lenders look for in a commercial loan package.
Commercial property types
This is a partial list of properties that require commercial financing.
Commercial loan-Ask yourself
Some questions you may ask yourself about commercial financing and you.
Commercial loans & myths about the SBA
This article separates commercial lending facts from myths.
Commercial Loan Checklist
This list will help you identify the types of information a banker will need to make an informed decision about your business.
Financing Options
Research credit lines and other financing approaches.
Commercial loan submission proceedures
Investor Loans
7 things to avoid when shopping for commercial loans.
Many people rush into commercial loan shopping thinking one will be easy to obtain, but very soon they realize that it is not as easy as qualifying for residential loans. Like anything else in business, the perfect commercial mortgage should be part of a finely tuned machine. In order to keep your business running smoothly it is important to avoid making mistakes. Here are the 7 most common mistakes to avoid:
- Not having clear objectives:
Many business people start loan shopping without clear objectives. They fail to set realistic goals for the type and terms of the loan they need and consequently set themselves up for failure. It is important to make a list of goals and objectives based on a quarterly time line that include your projected monthly repayments of this loan up to the time it is eventually paid off in full. If you do not have such goals or objectives you are like a car driving without a road map. Make sure your new business plan includes this goal summarized in an executive summary. If this plan is not properly prepared, lenders and investors with the best programs you will not see your company or you as a good risk placing you in a higher risk category where the rates are high and terms rough.
- Neglecting to include an escape strategy:
Neglecting to include a practical and realistic escape strategy is a dangerous mistake. It can lead to many problems. When you do not analyze the potential for failure or hardship and ways to repay all debt due to creditors including the loan you are applying for, you present yourself to potential investors or lenders as not being able to protect their investment should things go wrong. They need to know the “What if” scenario. Also not doing so will lead to targeting the wrong loan types, terms and rates and size. You need to “Hang your coat high enough to get it back should you want to leave the building”.
- Not researching:
By not researching your loan sources may result in a lot of wasted time and effort for everyone involved. Not knowing if a local bank, mortgage broker or investment group is best for you by researching each and everyone of them you will not have a proper idea of the resources each has to offer that may better suite your business plan. It is simple to do by placing a few phone calls, tell the loan specialist exactly what your intentions are, long term goals etc, then see which one offers the most suitable package for your goals including the escape strategy. Before doing so, you should have already had your 3 credit scores from Experience, Equifax and Transunion ready, plus two years business & personal tax returns, and an up to date business profit and lost statement ready if you intend to use them as a basis for qualification.
- Not budgeting ahead:
This may sound redundant but budgeting is extremely important in the loan process. There are up front out of pocket costs during every loan process that you will be responsible for. Mainly due diligence costs to cover things like the appraisal, title work, survey, insurance, closing fees, lender and broker points if any and other costs that will not be rolled into the loan. Every loan has these fees and you are responsible for them. These costs are also known as “Hard costs”. This is especially true with first lien loans. Unless you are seeking a stated income stated asset loan, you must include proof of liquefiable assets that can cover 6 to 12 months worth of principal tax and insurance payments. Unless you have these costs ready and
available, you will be wasting your time and everyone else’s.
- Giving up too soon:
many commercial loan shoppers give up if the first rejection or if the first two to three loan scenarios do not fit the criteria they are looking for. Just when success might be just around the corner they give up and decide to stop looking. You need to exhaust your options at least 1 bank & 1 mortgage broker before you decide to scrap the idea and move on. The broker is usually your best bet if a bank turned you down or had a program that did not fit your goals because they typically represent multiple lenders and investors and one is most likely to have an option for you.
- Poor loan request:
How often have you wanted buy a product from someone but when they presented the idea you had serious doubts? Poor unprofessional presentation of your loan purpose will cost you good loans. In fact without good presentation of your purpose for applying you will not be able to qualify at all. It is critical to get this right. Sometimes the loan specialist may help you but most are so busy working on smooth deals, they would consider you a waste of time and money if they held your hand to get things right. If necessary get let them know up front you know you want a loan and need help finding out exactly what programs and documentation you will
need in order to submit a successful application.
- Not screening your loan specialists carefully:
Selecting the right loan specialist, bank or mortgage broker is like hiring key
personnel for your business. It is very important not to rush into this. There is no shortage of banks and mortgage companies needing to place a loan but you need to screen them carefully before submitting your loan through their company. One incompetent loan specialist or mortgage broker can cost you a loan, offer you the wrong loan or make you spend the due diligence cost which is non refundable. Do not take this type of risk. You want to spend time and money on things that work at all times and screening loan specialists is the way to achieve this. You will then be able to obtain the perfect loan for your financial needs in a timely and cost efficient
manner.
The golden rule is to research and preparation. Prepare yourself financially and document-wise you want to be able to move on as soon as you find the right loan. The last thing is to shop multiple sources of loans. Do not just try one or two banks or brokers and settle with the results. This will limit your knowledge as to what’s out there for you. So remember to diversify your search and place all your ducks in a row.
By avoiding these mistakes your loan search will be successful and you will get one that you deserve. You will be able to achieve your financial goals and really cash in on some the great advantages owning commercial real estate. So plan ahead and be careful not to make these common mistakes.
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