Commercial real estate financing can be challenging, especially for smaller operators or companies in emerging markets. While it’s harder to secure a commercial real estate loan than ever before, there are still several options you may qualify for as an investor, start-up business or property owner.
Whether you’re looking to expand your current portfolio, purchase an additional piece of property or build a new structure from the ground up, commercial real estate financing may be the perfect solution for your business. However, as with any loan process, securing a commercial real estate loan is not easy and comes with its own unique challenges and considerations. If you’re considering commercial real estate financing for your business, this guide will walk you through everything you need to successfully secure funding.
What is Commercial Real Estate Financing?
Commercial real estate financing allows investors to purchase and build commercial properties with cash from a lender. The loan is then repaid with interest, and the lender is given a lien on the property to ensure repayment. Investors can use commercial real estate financing to purchase properties with cash and then quickly sell them once they are fully financed.
Commercial real estate financing is also ideal for start-up companies that need capital to build a new property or purchase a commercial building. Commercial real estate financing is a loan that allows you to borrow money to purchase or build commercial property. You can repay the loan amount with interest, and you typically sign a promissory note that pledges the property as collateral.
What do lenders look for?
To get a commercial real estate loan, you need to be able to demonstrate a long-term track record as a successful business owner with a keen understanding of your industry. Lenders want to see that you’ve been able to repay your debts on time, and you’ve been able to expand your business over time. Commercial real estate financing is a long-term investment for lenders, and they want to see that you’re in it for the long haul. This means carefully preparing for your application, both in terms of your finances and your real estate strategy. You will also need to show that you have the appropriate collateral.
How to prepare for the application process
Before you start the loan application process, you’ll need to have the following information ready:
– Financial health: Lenders will look at your company’s financial health to determine if you have the ability to repay a commercial real estate loan. This means calculating your debt-to-equity ratio, profitability and operating expenses.
– Business plan: Every lender will want to see a detailed business plan outlining your short-, mid- and long-term goals. This includes an analysis of the real estate industry, your competitors and your unique advantages.
– Collateral: In addition to your business plan, lenders will want to see that you have the appropriate collateral to secure the commercial real estate loan. You can either pledge a piece of property as collateral or find a lender who will work with your company’s cash flow.
– Real estate strategy: Lenders want to know how you plan to strategically use the commercial property, including the market you plan to target and your long-term plans for growth. This includes knowing your exit strategy, meaning how you plan to eventually repay the loan and sell the property.
How to improve your chances of getting approved
To improve your chances of getting approved for a commercial real estate loan, you’ll want to carefully prepare for the application process and have a strong financial health. This means having detailed financial records and projections, as well as a viable business plan. In addition, you’ll want to find lenders who specialize in commercial real estate financing.
This could include commercial banks, commercial lenders or private equity firms. Finally, you’ll want to build a strong relationship with your lender. This includes keeping them up to date on your business progress, as well as communicating any changes to your financial projections. The relationship you have with your lender will play a big role in getting approved for a commercial real estate loan.
Where to get a commercial real estate loan
There are a few different ways you can source commercial real estate financing. You can work with a commercial bank, commercial lender or private equity firm. Commercial banks can provide flexible terms, but you’ll likely need a strong credit score history and a significant amount of collateral. Religious properties can be financed through specialty lenders such as Hub City Lending, and the loans conform to conventional commercial standards. Church financing in Texas is considered a specific type of commercial real estate financing.
Commercial lenders can get creative with financing terms, but they will require equity upfront and may not have the same appetite for risk as a private equity firm. Private equity firms typically provide long-term financing, but expect a significant equity stake in your company. The key is to find the right commercial real estate financing partners for your company.
Hub City Lending’s experienced and seasoned financial professionals can usually find a solution for all your financing needs using our knowledge and expertise. Hub City Lending, due to its associations with nationwide lenders, can usually find you the funding you need, unlike a bank or local financing institution, which only provides financing to the most creditworthy companies.
Bottom line
Commercial real estate financing can be an effective way to quickly expand your business or purchase new commercial property. However, it’s important to plan ahead and do your research to find the right lender and financing terms. Commercial real estate financing will always be challenging, but the right preparation and approach can help to make the process smoother. From improving your financial health to finding the right lender, there are many steps you can take to make your commercial real estate financing a success.
