Obtaining a commercial loan doesn’t have to be an arduous process, especially if you know what to expect and prepare for the application in advance. The most important thing to know is that providing more documentation reduces the risk for a lender, which in turn can translate to a better rate. If you're looking to secure a multifamily loan or financing for another investment property loan, here's everything you need to know to prepare before seeking the mortgage.
1. Select a Lender to Work With
Choosing the right lender can make or break commercial financing because each institution and bank will have different rules, regulations, and policies. You may want to start with the bank with whom you already do business, or you might want to try somewhere that specializes in commercial real estate loan options. Once you’ve chosen the right lender, you can ask for assistance deciding the right type of commercial real estate loan for your venture.
2. Prepare Your Personal Documentation
Traditional lending institutions like banks are going to require a great deal of information during the application for an investment property loan, and having it all prepared will make the process go more smoothly. On the other hand, non-bank alternative lending options will typically be able to start the commercial loan transaction process with less documentation. If you are short on time or feel as though you will not be able to provide the amount of documentation a bank will require, you may want to focus solely on non-bank lenders.
3. Get Your Business History in Order
If a financial institution is going to issue an investment property loan, it is also going to want to know a great deal about the business they're lending the money to. This is where it’s important to have your business history prepared. Along with the name and nature of your company, here's some of the most pertinent information your lender may want to see:
- Up-to-date business plan
- Proof of ownership
- Business history
- Valid business license and registration
- Customer list
- Vendor and customer contracts
4. Gather Information about Your Business’s Financial State
Along with getting familiar with the history and operation of your business, a prospective lender will also require details about your business’s financials, because they’ll want to know that you’re a good candidate for a new loan (meaning you'll pay it back). To assess this, they’ll want to look at things like your balance sheets, tax returns, accounts payable and receivable, bank statements, income statements, and current debts. Beyond that, you should also be prepared for them to request a personal credit history, and most lenders look for a score of 650 to 700 at least.
The amount of documentation required for commercial mortgage financing will depend not only on the lender but also the specific loan program. Many lenders offer reduced documentation programs that require much less information.
5. Consider Creating a Customized Repayment Strategy to Submit with Your Application
Once you’ve selected a lender, a financial product, and have all your documentation in order, it’s time to go through the process of filling out the actual application. When you’ve completed that, you may want to think about offering a repayment strategy to the lender as well because this will make their job easier when determining whether you're a safe risk. If you choose to create such a document, be sure to include revenue forecasting and cash-flow projections for the coming years to support your proposal.
Seeking commercial mortgage financing is an important first step in a commercial real estate venture, but the process can seem daunting if you don’t know what to expect. With this list, you'll have everything you need to prepare for your application, helping you to ensure the best rates possible. Contact us today to get the application started for your commercial loan.