While most people are familiar with the process of purchasing a home and obtaining a residential mortgage, financing a commercial property is a completely different experience. Not only is the process more complex, the stakes for your business are high – so it’s important to enter the decision carefully with an understanding of what to expect.
In order to get a commercial real estate loan in today’s economy, it's important to make sure your business:
- Has sufficient cash reserves
- Has a strong credit track record
- Is profitable
Lenders will be very critical with their underwriting to ensure the borrower has the ability to repay the loan. Almost all documentation in the closing process is required to satisfy this basic concern.
Required Documentation
Before approaching a prospective lender, it helps to know what they will ask for. The following documents are standard in almost all cases:
- 3-5 years of financial statements (such as quarterly or annual income statements and balance sheets)
- Income tax returns
- Corporate documents
- Personal financial records of the business owners
Some loans also may require your business to meet certain tests in the future. They may require a minimum level of positive cash flow, or a certain debt-to-cash-flow ratio, or other financial criteria.
If you ask your lender ahead of time for the documentation they will need, it may save you time and avoid delays or rejected loan applications.
Consult Your Team
As with any significant decision affecting your business, it’s important to consult your team of business advisers, including your attorney, CPA and a banking partner.
Working together with this team, you can carefully evaluate the opportunity and create a plan that ensures a commercial real estate transaction that accomplishes your business goals well into the future.
Questions?
If you have any questions about commercial real estate financing, please feel free to contact me:
Guest Contributor:
Joe Neuerburg
Vice President
Mutual of Omaha Bank
(816) 751-6204
Joe.Neuerburg@MutualOfOmahaBank.com
Member FDIC
Equal Housing Lender
A commercial mortgage is similar to a residential mortgage, except the collateral is a commercial building or other business real estate, not residential property. In addition, commercial mortgages are typically taken on by businesses instead of individual borrowers. So the process of loan is slightly different.
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