Whether you’re planning to acquire your first commercial real estate or expand your property portfolio, you will likely need financing. This is because, similar to a home mortgage, you can use a commercial loan to buy a commercial property outright or fund improvements in your existing commercial space. However, the commercial lending process is typically fraught with uncertainty.
This commercial lending training guide offers tips on how to deal with the uncertainty associated with the commercial lending process.
- Be Clear on the Amount You Need
You should ask for the right amount of financing. For instance, if you ask for and get a $400,000 loan, and then later you realize that you actually need $800,000, you will have to go back to the lender. However, your lender may not be quick in approving another loan after just lending you the first loan. You will either be stuck with inadequate financing or need to find another lender who will make the process even more complicated. Conversely, if you overestimate the kind of financing you need, lenders may question your credibility and assumptions.
- Update Your Business Records
Be transparent about your current financial state. The process of applying for financing will be much smoother if your accounting, tax, and financial records are accurate and up to date.
- Maintain Good Credit
In addition to accurate and up-to-date documents, ensure that financial obligations are addressed on time. Most commercial lenders have a credit criterion that borrowers need to meet. You should avoid late payments, charge-offs, foreclosures, and bankruptcies.
- Understand that Lenders are Different
There are advantages and disadvantages with the various lending institution. For instance, large banks typically focus on bigger clients who need larger loans that translate to larger profits. While you might be able to secure a commercial real estate loan from a large bank, you’ll likely get better terms and more attention from an alternative lender. Besides, large banks often have stringent requirements, which exclude some individuals/ businesses. Conversely, alternative lenders are much more flexible. They can be more accommodating to your unique needs, according to an article published by Forbes.
- Identify a Good Lender
Not every lender provides the type of financing you need, so choose a lender who offers the kind of commercial real estate loan that’s suitable for you in terms of terms, size, and product. Lenders don’t have the same level of know-how. Not all lenders are accommodating to their borrowers’ unique needs. One of the worst experiences you can have is getting financing from a lender who’s indifferent to your needs and then being stuck with them for a long time.
- Get an Actual Commitment Letter
A commitment letter is an approval letter from the lender that spells out clear-cut conditions related to the contract. These conditions may include getting appraised at a particular value, getting a clean environmental report, getting certain insurance policies, and so on. Note that these letters have term limits and can be negotiated in terms of interest rates, amortization costs, etc., even after the letter has been issued.
- Submit Your Application
Every lender requires specific forms and documents. Getting your financing can be delayed if you don’t turn in the paperwork quickly. Ensure you have all the necessary paperwork (like an appraisal, environmental reports, and insurance) before approaching potential lenders.
Use this commercial lending training guide to help cope with the uncertainty associated with the commercial lending process. Equally important, ensure you choose the right lender. Do you have any additional questions about how commercial real estate loans work in California? At Fidelity Mortgage Lenders, we’re here to help. To get started, contact us or give us a call at (800) 752-9533.