Commercial real estate loans help businesses grow. They’re a great option for building a bigger space, setting up a new space and expanding into a new market, or refinancing an existing commercial loan. If you’re considering your commercial financing real estate lending options, here are some things you want to know.
What Are Commercial Loans Used For?
As mentioned in the introduction, commercial loans are ideal for renovating or the purchase of property. Typically, lenders want the properties to be owner-occupied properties with the owner occupying at least 51% of the space.
Why is this important to know? Well, if you’re planning on building or renovating a space to rent out to other entities, it will affect the loan your business qualifies for. Not all lenders are willing to loan money for nonowner-occupied properties because default risk is too high.
What Lenders Look for in an Application
Traditional commercial property lenders want to look at the business’s finances, such as the debt service coverage ratio. They check your company’s business credit score and how your business is structured (i.e., limited liability, S-corp, etc.). Smaller companies might also be required to provide information about the owner’s or owners’ finances.
As you can imagine, the timeline for getting approved for a commercial loan can take a long time. There’s a lot of paperwork involved and double and triple-checking of facts. The process can be so tedious that many businesses put off expanding because it’s too much of a hassle.
Luckily, some private lenders specialize in commercial real estate lending that doesn’t have as strict requirements for getting the cash you need to grow your business. These lenders focus more on property characteristics and value. They offer creative loan solutions for businesses that fall short when applying for traditional loans. These solutions include bridge loans, construction loans, and hard money loans.
Asset-based loans, like many creative commercial loan products, make it easier for businesses to get the money they need to take their companies to the next level. These financial products are customized to meet the needs of all business types including hospitality, multi-family, warehouse facilities, retail locations, medical offices, and even land development projects. Creative lending solutions can be especially beneficial for startups that have very little capital to invest and little-to-no credit.
If you’re interested in real estate financing for your business, research many different commercial real estate loans to find the right fit now and in the future.