How Lenders Review Applications for Commercial Real Estate Loans

According to Walden University, many small businesses in the U.S. struggle to stay afloat due to cash flow challenges. Thankfully, mainstream lenders, including banks and credit unions, have a wide range of loan products aimed at such businesses. For instance, commercial real estate loans enable small business owners to purchase business properties. However, to qualify for such loans, borrowers typically have to meet certain loan requirements, which generally vary from one lender to another. Read on to learn more about what lenders typically look for when reviewing commercial real estate loan applications.

How to Get a Real Estate Commercial Loan

Depending on the type of business you run or the property you want to purchase, you will choose a suitable commercial real estate loan from the options available. Take note that the lender will require you to occupy at least 51% of the building to be eligible for the loan.

What Do Lenders Look For?

Before you access a commercial real estate loan, there are some requirements you will need to fulfill. While this varies from one lender to another, the following are the standard factors that most lenders will look for:

  • Personal finances – Although financial experts warn against mixing business and personal finances, this can be a bit tricky for small businesses because their owners typically have full control. It is for this reason that your personal finances also matter when it comes to getting a loan. This means that if you have a poor credit score or a history of financial struggles, the lender may deny you the loan.
  • Business finances – Thanks to the high risk involved, small businesses undergo massive scrutiny before accessing loans. The lender will want to know if your business is financially strong enough to repay the loan. To achieve this, they calculate your debt service coverage ratio, which basically compares your net operating income (NOI) to your total debt service for the year. For most lenders, a ratio of at least 1.25 is required.
  • Business credit score – Your business credit score tells a lot about your business’s ability to repay the loan. If you have defaulted on other loans in the past, you will have a poor credit history, and hence, you may not have access to the loan.

How to Prepare for the Application Process

If you satisfy the above three criteria, the lender will most likely give you the go-ahead to apply for the loan. The loan application process can either be long or short, depending on the underwriting procedures. For application purposes, be sure to prepare the following documents beforehand:

  • Bank statements dating back three months or more
  • Books, records, and financial reports
  • Collateral details
  • Business plan
  • Third-party appraisal
  • Business tax returns

In case you are applying for a hard money loan, you may not be required to provide all these documents considering it is mainly based on the property value.

Where to Get a Commercial Real Estate Loan

Reliable sources of commercial real estate loans include, among others:

  • Banks
  • Commercial lenders
  • P2P marketplaces
  • Conduit lenders
  • SBA loans
  • Hard-money lenders

The choice of where you get your loan should depend on factors such as interest rates, underwriting requirements, size of the loan, and urgency.

Before you apply for a commercial real estate loan, you should understand what lenders look for when reviewing loan applications. This will increase your chances of qualifying for such a loan. At Fidelity Mortgage Lenders, we can help you secure the right loan for your needs. To get started, call us at (800) 752-9533 today!

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