Lenders are not always keen when deciding to offer a commercial property loan. If you are an investor, there are some factors that may affect the decision of the lender to help you out.
It is a piece of cake to obtain a loan for purchasing a residential property. But it is not the case when you are acquiring a commercial space.
Most lenders are skeptical of financing commercial properties. It is especially true if the property is still under construction.
A few investors purchase commercial properties to run their business. If this is your case, a lender will feel more comfortable knowing that you can repay the company
The loan to value (LTV) for residential funding can range from 75% to 90%. But the percentage is much lower for commercial property purchases. In that case, you will have to shell out more money.
There are fees involved in processing your commercial property loan. Unlike residential purchases, the fees are not fixed.
It can have a standard 1% of the loan. However, if your business has an attractive profile, your lender is willing to reduce the fee to 0.5%. But it still depends on the lender.
Major lenders will require a down payment before they release the money. This downpayment could be from 20% to 30% of the property’s price.
What Lenders are Looking For
One of the things that lenders will look for before approving your application for a commercial property loan is your business finance. Lenders consider small businesses as a risk. They will have to study your books to know whether your business has enough cash flow to repay your loan.
They may also assess your business’ credit score and use that information in making a decision on how much loan you can get and the terms you can have.
Furthermore, your business must be structured as a corporation, LLC, or LP. You must not apply for a loan as a sole proprietorship because lenders consider it as personal, which is a bad thing because you are putting your personal wealth at high risk in case you cannot repay the loan.
Besides business finances, lenders will also look into your personal credit score to find out if you have financial woes in the past. If you have a lower personal credit score, it might hamper your business’ ability to get a commercial loan.
When you apply for a commercial property loan, you need to investigate the loan terms and the rates. Apart from the loan-to-value ratio, it is also vital to investigate on the amortization period. It can range from 15 to 25 years.
Investing is a great deal. It has plenty of challenges that you need to face. If you have a problem with your finances, you should consider getting a commercial property loan. You can use it to fund your company’s equipment or purchase a commercial property.
At ABO Capital, they can assist investors in getting the right funds. They offer different commercial property loan products to those who want to buy a commercial property. Talk to their experts today if you have inquiries about the loans: (888) 801-5401.