If you’re an entrepreneur and have made the choice to purchase an income producing property such as a hotel or a shopping center, your next step is to secure a commercial real estate loan from a financial lender. While getting approval may seem like a difficult prospect, if you can minimize the risk to a prospective lender, they will more likely to approve a CRE loan. You just have to show a lender that you can create steady income from the property and that the property and connected assets are themselves valuable.
When you approach a lender, you’ll need to show that you and your business are financially sound and have no outstanding problems such as tax liens or large debts. Financial liabilities could put paying off a CRE loan in jeopardy, and lenders are on the lookout for such problems. For that reason, they will also want your personal credit score to see how strong your creditworthiness is. Also, be ready to show you have a strong vision for your business. Producing a business plan with projections of income growth and profit margins will also help you get approved.
Along from these other factors, an important factor in securing your CRE loan is collateral. In the event of a loan default, a lender will want assets of strong value that can be sold to pay back the investment. Sometimes the real estate that you want to buy will be enough, but your lender may want a little more security. For example, lenders may also want your invoices or equipment owned by your business as additional collateral. However, if you have good credit, you can possibly avoid these requirements.
The size of the loan you apply for also affects collateral. Larger loans are typically carried out by property management companies that are already well established, so lenders have confidence in their ability to pay off the loan. If you’re applying for a smaller loan or if you do not have a lengthy business record, the lender may ask you to personally guarantee the loan, which would open up your house, car, or other personal assets to be used as collateral.
A comprehensive case for your CRE loan is showing that your property or business has strong value and can produce income. Another component is showing you have no outstanding financial problems. All of these factors will go a long way to securing your loan and setting your business on the road to reap the financial benefits.