If you’re trying to acquire a commercial real estate loan for the first time, you may be in for a bit of a surprise. The commercial loan application process is quite different from the home mortgage application process.
Commercial loans are usually not backed by governmental entities, such as Fannie Mae. Moreover, commercial lenders are very risk-averse, so interest rates tend to be higher than rates for home loans. Some lenders may even examine your business’s finances before deciding whether or not to approve you for the loan.
1. How much should I borrow?
Most banks do not allow second mortgages, so you should try to borrow enough to meet the current needs of your small business. Another thing to keep in mind is that if you are buying a whole new property altogether, it is likely you will be required to make a down payment of 20-25%. So, as a potential borrower, you need to have two things figured out before you finalize your loan application: how much money you need, and your ability to repay the loan in a timely fashion.
2. How will I repay the loan?
Bank loan repayment terms differ slightly from non-bank repayment terms. Banks generally require the borrower to pay interest and principal at the stated rate for the first few years, and then repay the rest of the balance in one huge balloon payment. However, if the business’s cash flow turns sour in the few years before the balloon payment is due, then the lender may require a higher interest rate. This could put your property at risk of being foreclosed.
Non-bank lenders, on the other hand, generally have less strict requirements for their commercial loans. Instead, their loans work much like typical home mortgages, just with a slightly higher interest rate.
3. How long before the loan is approved or rejected?
Borrowers should expect lending institutions to take several weeks to accept or reject a commercial real estate loan application. While you’re waiting, continue to operate your business as usual. Don’t work on the assumption that the loan will be approved for sure, because it’s very difficult to predict the outcome. Wait patiently for a commitment letter from the bank.
If you need an infusion of cash, Biz2Credit has the answers. Biz2Credit loan experts can help you choose from a variety of options, such as SBA loans, non-SBA bank loans, cash advances, other types of funding. Call (800) 200-5678 or visit www.biz2credit.com.