Applying for a Commercial Real Estate Loan? Read This First

Applying for a Commercial Real Estate Loan? Read This FirstApplying for a commercial loan is a completely different ballgame than applying for residential mortgages. Commercial lenders have a different set of priorities and at the end of the day, it may be significantly harder to obtain a commercial real estate loan than a residential loan. Don’t let this discourage you. Working with the right local broker to find the best property and preparing ahead of time will increase your opportunities to obtain the necessary loan. 

Research Before You Sign

The language of commercial lending can be complicated which can lead to confusion for borrowers. So, you’ll have to put in a little bit of time doing research. Familiarize yourself with some universal commercial loan concepts so you can communicate the details of the terms of your contract intelligently and avoid any potential misunderstandings.

You don’t need to become an expert in the field overnight. However, even a little bit of knowledge will go a long way to ensuring you obtain the right loan and pursue the right property for your business goals. This will give lenders additional confidence to extend a commercial real estate loan.

What are the Types of Commercial Property Loans?

Whether you are planning on remodeling or expanding your growing business by purchasing a commercial property, you will likely need a loan. There are many types of commercial real estate loans with different qualifications and specifications. Review the list below to familiarize yourself with the primary types of loans:

  • Commercial Bridge Loan
  • Traditional Commercial Mortgage Loan
  • SBA (small business administration) Loans
  • Conduit Loans
  • Soft and Hard Money Loans

Know How Much You Need

One of the first steps to take before applying for a commercial property loan is to figure out how much you need to borrow. Consider the down payment. With traditional mortgage loans, the maximum loan amount is generally between 65% to 85%. This amount is determined by the lender. A down payment on a commercial property is typically between 15% to 35%, depending on the loan type. The loan type will be determined by how much you need to borrow. 

If you want to apply for a small business loan, there are some factors to consider. Small business administration loans (SBA loans) are a type of loan issued by banks, credit unions, online lenders, or other financial institutions and are partially guaranteed by the government. There are different types of SBA loans that have varying loan sizes. For example, SBA microloans give up to $50,000 for inventory and supplies while SBA 504 loans give up to $5.5 million for land and facilities. Research the loan terms of various types of loans to find the right one for you.

Come Prepared

Once it’s time to apply for the loan formally, make sure you have all of the necessary documentation. This may seem like a slow process. However, some loans, such as hard money loans, require less detailed documentation. At the most, you will need:

  • Personal financial records, reports, and books
  • Income statements
  • Business tax returns
  • Insurance information
  • Previous three months of bank statements
  • Third-party property appraisal 
  • Credit history

There is often very little leeway on this, so make sure you know ahead of time whether you have all the required documentation. Sometimes small or new business owners won’t have the level of income documentation required by some lenders, so it’s best that you determine a lender’s requirements before you spend time applying.

At Ullian Realty we leverage over 50 years of combined market experience in the Brevard County Melbourne/Palm Bay/Titusville commercial industrial real estate market to help you find the right property and assist you with your lender for the right loan for your commercial real estate venture. Please contact us today to find out more about real estate, and how commercial loans might assist you in your real estate purchase.