How to Prepare Yourself and Your Business for a Commercial Loan8 Questions You Must Ask Yourself Before Taking Out a Commercial Loan A commercial loan is a major investment. Depending on your circumstances, it may the best investment you make for your business or portfolio. But before you pursue commercial funding, make sure you're prepared. Ask yourself the following questions. How much do I need to borrow? this is arguably the most important question to ask. Your business property is an investment, which makes quantitative analysis a necessity. Make sure you clearly identify your property needs, and research real estate costs in your area before you move forward. What do I need this money for? This may seem like a question with an obvious answer, but it's one you must ask. Will the money be used solely to purchase the property, or are there other costs involved? Have you identified the tasks that must be completed to fully build out your business in your new commercial space? In short, do you know what expenses you're truly taking on? If you have a business mind, you've probably laid out all of the expected and contingent expenses facing you and your company for the next few quarters, at least. If you haven't done this, don't even consider taking out a commercial loan. You won't know your own needs, and as a result, you'll end up making poor decisions. Make sure you know what you'll be spending your money on before you approach a lender. Who will borrow the money? If you're planning to borrow the money yourself, under your own name, this is another easy question. But many, if not most, commercial properties are purchased through corporate entities and partnerships. If this is the case, there may be additional legal loose ends that must be tied up before completing the purchase. Contact a skilled real estate lawyer for counsel. How long do I need the money for? Commercial mortgages and residential mortgages are very different. While most homeowners are familiar with the standard 30 year and 15 year home loan terms, commercial loan term lengths vary widely. Your lender should be able to craft a custom loan term length to meet your repayment needs. But before this can be done, you need to know how soon you plan to pay back the funds. This isn't a mortgage you can simply work on over the next few decades. Figure out how long you need the money for. Is my credit good enough? In today's market, you need excellent credit to get the lowest mortgage rates on a commercial property loan. Make sure your credit score, or the credit score of your company, is high enough to enable you to get the money you need at a beneficial rate. Be careful. A low or shaky credit history can severely damage your commercial loan application and derail your business development plans. Do I have enough collateral? As with many other loan types, most commercial property loans are leveraged against collateral that you currently hold. With many loans, the collateral that you hold is the real property itself, which will be approximately equal to the amount of money you plan to borrow. If you're borrowing additional funds for other purposes, though, you'll likely need to provide additional collateral in the form of equipment, accounts receivable, or personal assets. What does the lender need from me? Among other things, your lender will need a lot of personal information and official documentation about your business. Read through our list of factors your lender will consider to learn more about what your lender will need from you. How am I going to repay the loan? If you don't have a strong answer to this question, go back to square one and start over. Make sure your business plan or repayment plan is solid before pursuing a commercial property loan. Most business owners or entrepreneurs lay out solid business plans that address financing costs through the allocation of profits. If you aren't sure whether your business is viable, conduct more research or spend more time in development before staking your claim on a commercial property investment. |
|
