Commercial Real Estate Loans

Your business is growing. You want to purchase real estate. Whether your intent is to avoid paying increasingly high rental rates for your offices or because you need to further expand the business to other locations, commercial real estate loans are the means in which to accomplish these tasks.

Commercial real estate loans differ from traditional residential real estate loans in many ways. Make sure you take the time to fully understand the commercial loan before you begin speaking with potential lenders. You don't want to find yourself in a bad situation because you leaped long before looking at the fine print. The types of information you will be required to produce for commercial real estate loans are far more involved. They include things like your balance sheets, bank statements, tax forms, income and expense reports, etc. While not all lenders will require it, some will even ask for your personal credit statements as well. They look very heavily into your business credit. The documentation acquired helps the lenders in determining your debt service coverage ratio (DSCR), which is the ratio of your net income to your monthly mortgage debt. You want this number to be a 1.25 or greater for exceptional rates.

Unlike residential mortgages you will not have the option of a zero down payment. Commercial real estate loans only cover a percentage of the value of the property. This is referred to as the loan to value (LTV). The lower the LTV value the better the interest rate. Many lenders cap the LTV to 75%.

Things to consider before applying for a commercial real estate loan include how you plan to utilize this property. If you wish to lease portions, it might be difficult to obtain a loan if you don't have any former property management expertise. Facilities used for businesses that are prone to high failure rates like night clubs and bars are also high risk loans not easily obtained.

Here are a few suggestions to help you get started and keep you from falling into classic mistakes.

1) Research your options.

2) Obtain a good real estate lawyer that can help you negotiate the very best deal.

3) Have a definite plan in place.

4) Have a business plan ready for your lenders.

5) Review your balance sheet and make sure your cash flow is adequate.

6) Have money available to put into repairs or acquisition.

7) Use a lender you trust or has been referred to you by good sources.

8) Check with the SBA on what options are available to you.

9) Have all your paperwork ready to go.