Very few investors have the upfront capital needed to execute commercial real estate deals. Financing is, therefore, an essential component of commercial real estate investing. Unfortunately, many potential borrowers are wary of commercial lending, thus missing out on opportunities. This apprehension is largely due to the common myths about commercial loans. When approached correctly, business loans can be precisely what you need to achieve your goals. Here are myths about business loans that shouldn’t deter you from finding the ideal funding options for you.
1. YOU SHOULD ONLY CONSIDER BIG BANKS
Big banks can be useful, but there must be a reason why borrowers are increasingly choosing small lenders over the big banks. For instance, borrowers now seek lenders who offer more flexibility, fewer restrictions, and less paperwork, which is the opposite of what most big banks offer, according to an article published by Forbes. Borrowers are opting for commercial mortgage lenders who are more accommodating to their needs.
2. YOU NEED A PERFECT CREDIT SCORE
This is one of the most prevalent myths about business lending. Sure, having a good credit score helps, but commercial loans are typically taken by business entities and not individuals and lenders use the commercial property as collateral. For instance, at Fidelity Mortgage Lenders, we hinge our financing on the property’s value rather than borrowers’ credit. As a result, even with a not-so-perfect credit history, you can still get financing for a commercial property.
3. YOU CAN HARDLY FIND GOOD DEALS
According to the Wharton School, fewer people have an in-depth understanding of commercial real estate compared to the residential market. Because of the knowledge gap, most people do not see the immense investment opportunities in the real estate market.
With technology and more accommodating commercial mortgage lenders, finding great deals in the commercial real estate market is now easier than ever. Besides, commercial properties often come with lower risk and more returns than residential properties.
4. THE INTEREST RATE IS THE ONLY IMPORTANT FACTOR
It’s all too easy to get caught up with the loan’s interest rate. This is because the interest rate essentially tells us how much the loan will cost at the end of the payback period.
Although interest rates should be taken into account when selecting a lender, there are other things to consider. Ask your potential lender about the loan’s terms, how quickly you must repay the money, and the purpose for which you can use it.
5. BANKS AREN’T A GOOD OPTION FOR LOANS
Just because you can get money elsewhere doesn’t imply you couldn’t get it from a bank or a traditional lender. Traditional bank funding is, in fact, a good alternative for established businesses aiming to develop at a modest rate. However, when a company doesn’t meet those requirements, it’s time for the owner to shop around.
A standard bank loan may impede your growth if you’re a startup with plans to grow quickly in the industry. Compare both traditional loans and other alternatives to see which one will be a better option. It’s also critical to have a thorough understanding of your company.
6. GETTING A SMALL BUSINESS LOAN IS DIFFICULT
Like other types of funding, getting a small business loan is all about planning. Ensure that your records are transparent and that you have sufficient reserve liquidity to persuade your lender that you will be able to service your debt on time.
SOME OF THE OTHER POPULAR COMMERCIAL LENDING MYTHS THAT YOU SHOULD IGNORE INCLUDE:
This can be true when dealing with some lenders like the big banks. However, with an agile and flexible commercial mortgage lender such as Fidelity Mortgage Lenders, the application process is typically short because you don’t necessarily need to provide your tax returns, and you can get financing as fast as 3 business days.
One of the biggest fears that investors have when considering commercial loans is that they might lose their personal assets in case the business venture doesn’t work out. To protect your personal assets, you should opt for a lender that doesn’t demand personal guarantees.
Many borrowers have a notion that one needs to put down a huge down payment to secure a mortgage on a commercial property. The reality is that with the right lender, you can negotiate reasonable down payments.
Another wrong assumption is that you can’t get financing if you don’t have an elaborate business plan. While it’s true that you may need to be clear on how your business works, a good lender won’t demand a business plan. They’ll instead judge your venture by evaluating it in its entirety.
The common belief that commercial lending is complicated, risky, and largely unattainable is wrong. At Fidelity Mortgage Lenders, we can help you secure the right commercial real estate loan for your needs. To get started, contact us or give us a call at (800) 752-9533.