The Guide to getting Approved for a Commercial Real Estate Loan

The process of applying for a loan for commercial real estate is a bit overwhelming at first. The purchase will often rely mostly on the bank’s decision to approve or deny. The good news is, though, that you can take some important steps to increase your chances by quite a lot. It’s key to put yourself in the shoes of the bank manager who’s reviewing your loan. Think about what might make them feel more comfortable about loaning you the money. Businesses can make a bad impression because they’re not prepared for the meeting. Here are the top steps to help you get approved for a commercial real estate loan.

1. Show Profits

The first step you’ll want to take is to make sure that your company has all its financial ducks in a row. The most key part of getting approved for a loan is showing that your company is growing and most of all, profitable. The business must be profitable or its chances will suffer a lot. That’s why you need to show your profit record as proof.

2. Assess Real Estate Needs

You should think properly about what you need in terms of real estate. Banks won’t be likely to approve a project that was thought up at the last minute, without detail. They’ll want to see your solid planning strategy, including your budget, your desired location, how much square footage you’ll need, your needs for buying or leasing, and more. Businesses often fail to plan properly before purchasing the real estate, disregarding future expansions completely.

When you prepare your budget, you’ll have to think about the purchase price or base rent if leasing, but just as importantly, you’ll want to factor in the extra costs for the property, like the due diligence costs, the renovations, production downtime when you’re going through transition of location, the associated legal fees, operational expenses on-site, and more. Spend time preparing your budget for the purchase or lease, with necessary details.

3. Propose a Specific Property

Banks will decide whether to approve your loan, and the amount of money loaned, on your finances but also for the building itself. That means the type of building, how old it is, what condition it’s in, and if it has resale potential. As per Mark Fordham, a real estate blogger at Writinity and Last Minute Writing, “they’re unable to be precise on the financing if you don’t have a certain property in mind to present. You’ll also give off the impression of not being serious or professional.”

4. Have Your Documents Ready

After you’ve settled on a certain property, you’ll need to gather and prepare everything you need to present to the bank. That means your financial statements (which are up to date), your business plan, and the details of the property you want to lease or buy. It could also help to showcase the experience in your management team.

5. Speak with the Bank First

Before you start bidding on the property you want, you should be meeting with the bank. This is especially helpful if you’re new at commercial property purchases. The bank will let you know what its conditions are to approve your loan. According to Melinda Hutchins, a financial expert at Draft Beyond and Research Papers UK, “that could mean anything from getting additional assessments for the property, getting it appraised, and title search. Don’t hesitate to get experts to help you with this due diligence step.”

6. Don’t Rush It

The offer of purchase shouldn’t be rushed, because you’ll want to give the bank the right time for reviewing the whole. Offers usually only give 30 days, but the reality is that a bank may need six weeks or more for the due diligence process. The mistake is that businesses don’t give the right amount of time for banks to run due diligence which can affect the sale when it comes to extensions.

You’ll also want to consider if the bank will give conditions around renovations, as banks can roll some renovation costs into the loan term, specifically if those will give more value to the property. Speak with your bank about every possibility for financing, because you might find some are much better for your business than others.