Commercial Real Estate Financing Basics

Commercial Real Estate Financing Basics

Whether you are buying a commercial property to expand or set up a new facility, there is no denying that this is a huge commitment for your small business. For such a purchase, you will need real estate financing. In some ways, it resembles a residential mortgage only that, in this respect, it is for business property. But before taking out such a loan, it is important to understand the basics to make an informed decision.

What Do Lenders Look for?

When looking for real estate financing, there are certain things that lenders will look at before giving you a loan. Here they are.

Business Finances

Note that commercial real estate loans come with a lot of scrutinies because start-up companies are usually considered risky. Lenders will want to look at your books to be sure that your business is producing enough cash flow to repay the loan. That is why it is important to keep your business finances in order at all times so that everything is in place when you are presenting the books to the lenders.

Business Credit

Another thing that lenders will check is the business’s credit score. This will determine the terms of the loan. That includes the interest rates, down payment, and payback period. For instance, the minimum credit score requirement for an SBA loan is 155. However, an SBA loan is not your only alternative. Look around as other lenders may have different requirements.

Personal Finances

In most cases, small companies are controlled by the business owner or several partners. Before granting you real estate financing, the lender will investigate your personal credit history and see if you have had previous issues before. If your credit score is low, it may affect the chances of you getting a loan.

Property Characteristics

The property you want financing for will act as the collateral for the loan. That is why your business ought to occupy around 51% of the property. Otherwise, you need to look for an investment property loan that is suitable for rental properties.

If you are considering real estate financing, it is important to know the basics to be prepared when applying. You can reach out to TCF capital for financial guidance on what is required of you to secure a loan.