Financing for such properties, including the acquisition, development and construction of these properties, is typically accomplished through commercial real estate loans and the mortgages are secured by liens on the commercial property. To secure a commercial real estate loan, borrowers need to decide on the type of commercial loan they need, depending on the property and business, and narrowing down their lender options.
Lenders have their set of requirements before they are ready to grant a commercial loan to finance the borrowers. These requirements are related to the personal finances of the borrowers as well as business finances and characteristics of the property for which financing is required.
Commercial real estate loans require a lot of scrutiny as small businesses are considered risky and most of them do not end up successfully. Banks and commercial lenders will need to look over your books to verify that your business has the cash flow necessary to repay the loan.
The lender will calculate your business debt service coverage ratio that is defined as your annual net operating income, divided by the annual debt service. A ratio of 1.25 or greater is a typical requirement. For instance, if your business is debt-free and applies for a $100,000 commercial real estate loan, the lender will want to see that you generate a net operating income of at least $125,000.
Before approving your loan request, the lender will also want to go through your business credit score to judge your access to a commercial loan and the terms including interest rate, payback period, and down payment requirement. It is because the lender wants to make sure that any money he invests will not be lost. There is a minimum loan requirement as set by the government but there are plenty of exceptions where small businesses can get a loan with a score lower than the minimum.
Small companies are usually owned by one or a few partners. Lending companies want to check the personal credit of the owners and their history to see if they have been through any financial issues in the past such as defaults, foreclosures, tax liens, court judgments or others. In many cases small businesses are unable to secure a commercial loan if the owner’s personal credit score is too low. Thus, before applying for a commercial real estate loan, it is necessary for borrowers to focus on improving personal finances.
The property that will be financed by the loan is the collateral. The lender will attach a lien to the property which gives him the author to seize the property in case you fail to pay timely. To qualify for a commercial real estate loan, your business must occupy 51% of the building to reassure the lender regarding the collateral.
Commercial real estate or business loan help borrowers purchase a property, and make their mark in the world of real estate investment. With commercial real estate loans Dallas, you can look forward to investing in property and enjoying good returns on the investment.