One of the trickiest parts of starting a small business lies is acquiring a commercial real estate loan. Unlike residential mortgages, commercial loans are not backed by the government, leading lenders to minimize risky investments. The housing market collapse leading to an economic recession in the last decade has made the acquiring process all the more difficult. In order for you to qualify for a commercial real estate loan, understand these key requirements:
1. Credit History
The first thing banks will look at is your credit background and history to see if you meet the criteria of someone who knows how to use his money wisely. Red flags such as bankruptcies or foreclosures within the last few years will most likely lead to rejection. Keeping your personal credit score above 660, preferably 750, is another requirement. All these statistics show lenders that you have the ability to repay the commercial real estate loan.
2. Cash Flow
Lenders want evidence that your business has the potential to pay them back along with interest. Financial institutions will ask for detailed statements of your cash flow including profits, expenditures, and budgets. Numbers do not lie and they paint a picture of what kind of business you are running. Make sure you can provide all of these numbers with evidence that you are a strong candidate.
As a startup, your business lacks the long-term credit history for lenders to readily provide you cash. Statistically, only 50% of small businesses survive to the five year mark. Banks need more assurance than the flip of a coin to provide you the necessary commercial real estate loan. Often times, lenders will ask for some sort of safety deposit such as the real estate to foreclose. Understand the risk involved with loans before involving your business.
Qualifying for a commercial real estate loan can be a long process. Do not give up hope if you get rejected a couple times. If you are willing to work hard for your company, there will be a lender out there who is right for you. Find more tips or speak to experts on commercial real estate loans at Biz2Credit.com.