You’ve filled out all of the documentation you need to start your own business, but you are just missing one thing; the property itself. Although you can run a business from home, having a designated location for work is beneficial.
With a commercial property loan, you can make this dream a reality. Read on to learn the five steps it takes to receive a commercial property loan.
1. Decide How to Use the Loan
Before applying for a commercial property loan, you’ll need to decide how to use it. For example, you could be starting a business or expanding a current one.
Before you buy commercial property, it is essential to know all of the details about it. Your lender will want to know this information to decide if they want to fund the investment or not.
2. Choose the Type of Loan
Depending on the commercial property investment you want to make, you may benefit from one loan over the other. The different types of commercial property loans are:
- Purchase loan
- Construction loan
- Refinance loan
- Hard money loan
- Real estate loan
If you want to buy property, the best loan to use is a purchase loan. To add to your current structure, you should use a construction loan. Compared to purchase loans, a construction loan has a shorter repayment period.
Hard money loans and real estate loans are commonly used for those looking to flip property. A refinance loan is going to have a lower rate and fewer monthly payments.
Related: USDA Eligibility
3. Find a Commercial Lender
Once you understand which loan is right for your needs, you can search for a commercial property management business to find a lender. This is not a simple process because some lenders have strict protocols.
When assessing whether or not you are worthy of a loan, a commercial lender will check the following:
- Personal credit history
- Yearly Income
- Business credit score
- Debt-to-income ratio
- Coverage ratio
When you use a bank as a lender, keep in mind that they will look at the purchase price, property type, operating statements, rental income, and more.
4. Prepare the Application
Lenders will require different things on the application. For example, some lenders may force you to buy commercial property insurance before handing out a loan.
In general, you’ll fill out forms about the property, your business, and yourself. These documents and more are crucial to your approval rates.
5. Close the Loan
Before you can start your commercial property project, you need to close on the loan. The closing process timeline varies depending on the type of loan you opted for.
Loans for short-term financing are closed on faster while long-term loans may take weeks or months at a time.
Do You Need a Commercial Property Loan?
If you’ve stumbled upon this article, chances are, you need a commercial property loan. Acquiring one is similar to applying for any other loan.
However, to ensure you get the loan needed for your specific project, you must complete research. Once you understand what loan you need and find the right lender, you’ll be well on your way to achieving success.
For more articles like this, check out the other posts on our blog.