You put a great deal of time, thought, and effort into your commercial mortgage application, and there's nothing more devastating than getting that rejection notice saying your loan was denied. Although it might be tempting to throw in the towel and give up, a better approach is to alter your application strategy and try again. Here are three reliable steps you should take right now if a traditional lender has denied your request for an investment property loan.
1. Ask “Why?”
The first and most important step after a commercial loan denial is finding out why the loan was rejected because that’s the key to moving forward. For instance, if you know that your loan was rejected because of an insufficient credit score, you can decide whether attempting to improve your credit or partnering with a more flexible lender should be your next course of action. Under the Equal Credit Opportunity Act, lenders are required to explain a loan rejection, so all you have to do is ask why your commercial loan application was denied. The most common reasons why commercial mortgage applications get rejected are:
- Poor credit
- Lack of credit history
- Insufficient collateral or assets to secure the loan
- Lack of documentation
- Loan amount
- Low cash flow
- Strict lender requirements
2. Rectify the Issue
The next step is taking action to fix the problem that led to the commercial mortgage denial. For instance, if poor credit was the reason cited, then you'll want to take the necessary steps to increase your credit score. Building credit is a process that involves paying down existing debts, paying bills on time, and not applying for too many loans in a short period. Here are some other ways to rectify issues that can lead to rejection:
- Insufficient collateral: Depending on your financial situation, it may make sense to apply for an unsecured business loan that doesn't require collateral.
- Insufficient documentation: If you are unable to provide the amount of documentation banks require, you can research light documentation options from alternative lenders. You may have to pay a higher rate, but you'll also be able to secure financing without providing documentation such as tax returns.
- Loan amount: Adjusting your requested loan amount could make your application more palatable in the eyes of traditional lenders. Keep in mind that many banks also reject applications because the loan amount is too small.
- Low cash flow: there are plenty of ways you can increase cash flow, including lowering overhead, increasing profit margins, or even cash-out refinancing.
3. Rinse and Repeat (Apply Again)
Once you’ve taken steps to fix the problem that led to your investment property loan rejection, it’s time to put together a new application. Don’t forget that you don’t have to try with the same lender. If some of the challenges you’re facing with banks seem insurmountable, it may be worthwhile to try alternative lending options because these are often more flexible and more tailored to the needs of individual borrowers.
Nobody likes rejection, especially when it comes to a commercial real estate investment dream that you’re trying to get off the ground. Even though rejection is a part of life, there are steps you can take to improve a denied commercial mortgage application and make a stronger case for yourself in the future, and it all starts with finding out why your loan was rejected in the first place. For more tips or to try with a fresh application and a flexible lender, contact Investment Property.Loans today.