Most small businesses are supported by commercial real estate loans, so buying real estate to renovate or build new facilities is an important need. Obtaining loans for commercial property in McKinney, TX, is not difficult, but certain conditions must be met. Getting these loans depends on several factors that are specific to the source of the loans. These factors are reviewed thoroughly and carefully by the loan source, which explains the difficulty that comes with obtaining these loans.
How to Get a Commercial Real Estate Loan
To get commercial real estate loans, you need to clearly understand the intent and purpose of the loan. You will have to choose your specific real estate loan type and find the appropriate commercial lender. Finding the right lender is not easy, so pick the one that suits your purposes the most. You will be required to prepare your loan application and fill out a couple of forms about yourself, your business, and your property.
Factors Lenders Consider Before Granting Real Estate Loans
- Personal Credit History
Small businesses are often owned by one or two people. Before granting loans, banks will most likely examine your financial history to confirm if you’ve had financial complications in the past like tax liens, court issues, defaults, and more. A poor score in personal credit could impede your chances of getting your loan approved.
- Business Expenses and Credit Score
Most loans for commercial property are generally more closely scrutinized than residential mortgages. Banks are generally more cautious with such loans as small businesses are more predisposed to be unsuccessful, with the owners not having enough cash to repay the loan. So, these institutions will seek to confirm if you can generate the necessary cash flow to repay. Most banks and commercial lenders will likely also check your business credit card score to measure your chances of getting the loan. FICO SBSS requires a minimum of 140, although there are cases and exemptions that can allow small businesses to get the loan with scores that do not meet the requirement.
- Coverage Ratio and Business Type
Coverage ratio is defined as your yearly net operating income divided by your yearly total debt service. Most banks require a score of 1.25 before granting loans. Your business type also matters in getting a commercial property loan. Limited liability entities such as LLC, LP, S-, or C-corporations have better chances than sole proprietorships.
How to Prepare for the Application Process
To prepare for your loan application process, lenders will generally require you to provide the following:
- Up to five years of tax returns
- Projected cash expenses for the life of the loan
- A third-party appraisal of the property
- Proof of citizenship when applicable
Where to Get Commercial Real Estate Loans
The following are a few different sources that can grant loans for your business purposes:
- Banks
Most banks are open to granting loans, and the rates are manageable, and the financing options are long term. However, getting loans from banks is complex because it requires a lot of documentation resulting in cumbersome processes.
- Commercial Lenders
There are numerous non-bank institutions that can also grant loans for small- and medium-sized businesses. The process is faster and less rigid, but the interest rates are higher.
- Hard Money Lenders
These are short-term lenders who extend loans based on the value of the property. These loans are typically granted by privately-owned companies and the process of qualification is a bit easier.
After getting a loan for your commercial property, it’s immensely important to ensure that your property has adequate commercial insurance. If you need any assistance in getting commercial property insurance, contact the experts at Gant Insurance Agency in McKinney, Texas. We’ll help you find the right coverage for your property.