Learn To Be A Fix & Flip Investor

Tuesday, October 10, 2017

What a Commercial Lender Is Looking for in Your Credit History

A commercial lender will want to review both personal and business credit when evaluating a loan application. This is because in many cases, the owner of the business will need to personally guarantee the loan.

Before you begin the process of applying for a commercial loan, you need to review both your personal credit history and that of your business to be certain that all of the information is correct. You can obtain a personal credit report via many banks and credit card companies that you might have a relationship with. They will provide you with your scores from TransUnion, Experian and Equifax which are the three major consumer credit reporting companies. Your business credit report can be acquired from Dun & Bradstreet. You will want to carefully review the information on each report and check it for accuracy. If you discover any errors then you should contact the agency to correct the matter prior to submitting your application to a commercial lender.

If you are disputing any information on your credit report, it is wise to contact the creditor to attempt to correct the issue. That can be much faster than having the credit bureau try to sort out an error. Once the issue is resolved, the credit agency is required to remove any information that has been found to be inaccurate. This is a much better plan than explaining to a commercial lender that the information is incorrect and that you are working with the credit bureau to have the error removed.

Establishing Business Credit

A commercial lender is going to expect to see at least four or five trade credit purchases to consider your business as having a credit history. To establish this creditworthiness you should set up a few accounts and use them prior to applying for a commercial loan. This will provide the lender will enough reference information to determine that your business is reliable and has been granted credit in the past and maintained it successfully. You can obtain a free copy of your business credit report by visiting www.dnb.com. You will also want to verify any information on that report just as you did for your personal credit report.

Good Credit Is Critical

As you might imagine, a lender will only know a limited amount about you and your business. Much of the information that they used to judge your creditworthiness comes from your credit reports. Having a strong history of borrowing and repaying loans is a good way to demonstrate responsibility and dedication to repaying your debt. Having a few slow pay items on your report can be an indication of issues. In most cases you will not be able to offer explanations that will remove the doubt created by these poor reports. Understand that your credit report will weigh more than anything that you can say to the lender to change their mind if you are determined to be a poor risk for a loan. If you have poor or questionable credit then you will want to focus your time on less conventional lenders to borrow for a commercial real estate purchase.

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Learn to Think Like Commercial Lenders

Securing a commercial mortgage is never an easy process. But you can greatly increase your odds of an approval by learning what commercial lenders are looking for on loan applications.

The more you investigate the process of securing a commercial mortgage the more that you will learn that each lender has a few unique items that they are looking for on a loan application. But you will also find that there are some important pieces of information that all commercial lenders will be interested in. Learning what these key qualification criteria are and how to best present them can have a huge impact on how successful you are when seeking a loan.

Commercial lenders need to make a decision about you and your business without really having any personal experience working with you. So they are going to rely heavily on your credit history to determine how seriously you focus on repaying your debt. This resource lets them used the experiences of those who have worked with you in the past and learn from them. All lenders are going to take a hard look at your credit history and place a great deal of importance on it. So be sure that your credit history tells a story of strong payment history and diligent work to remain current on your debt.

Your ability to repay the loan that you are requesting is also paramount to commercial lenders. They want to know that you have the cash flow to make the payments now and that your business will remain strong and continue to have the ability to make payments. To demonstrate that you meet this criteria, you need to show that you have good cash flow currently and also that your projections show continued or even increased cash flow for the future.

Another factor that is important when requesting a loan is the value of the collateral that you are offering. In most cases the collateral will be the property that you are purchasing but in other cases it could be your inventory, equipment or another property that you own. Be sure that the current market value of your collateral, whatever it may be, has a value in excess of the loan that you are requesting. In most cases you would need the collateral to hold about 120% of the value of the loan that you are requesting.

Numbers Are Not Everything

All lenders are also going to want to know more about the person whom they are potentially going to be doing business with. They want to know that you have a strong sense of responsibility and that your character is impeccable. They need to know more than just your net worth and who you have borrowed from in the past. Take the time to tell your story, how you decided to start a business and how you have managed to grow it to the point where you are currently. Also explain your vision for the future and how you plan to reach your goals.

Demonstrate Your Professionalism

You know that along with the loan application, you will need to submit a small mountain of documentation. Having that packet prepared and in a professional format shows potential lenders your level of professionalism, how well prepared you are and that you invested the time to learn about the process and the required documentation. Understanding what a lender is looking for and why will help you to be more prepared and more successful when applying for a loan.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Learning More about Commercial Hard Money Loans

Commercial hard money loans are a good short term option in some cases. Knowing more about securing the loan will help you decide if this is the tool that you need to purchase a property.

Commercial hard money loans are an alternative to conventional commercial loans. The lender is not a bank or other formal lender and the terms are substantially different from those of a traditional commercial loan. But commercial hard money loans do provide a good short term option if you have been turned down for a traditional loan or you need the money in a very short time frame.

When applying for a traditional commercial loan, you know that you will need to have good credit and no foreclosures on your credit history. But your credit is not as important when you are seeking commercial hard money loans. The reason is that a hard money loan is secured by the property value of the property that you are buying or some other type of collateral. The lender is primarily interested in the collateral value and its location. The interest rates on a hard money loan are higher and so are the fees that the lender charges so they are willing to take a little bit more risk on a borrower with less than stellar credit. As long as the lender can foreclose on the property or take possession of the collateral then they are assured of being able to recover their investment.

Because a hard money loan is secured with collateral, you might be under the impression that you do not need to make a down payment, but that is not the case. You will never find a lender who is willing to finance the entire cost of a property. All lenders require instant equity to ensure that they will be able to recover their entire investment in the event of a foreclosure. And because commercial property values can be volatile, you will likely need to have a down payment which is as much as 40%. The terms can vary greatly because most hard money lenders are individuals and the loans are not regulated in the same manner as a bank loan.

Beware of Certain Less then Legitimate Lenders

As with any business, there are some legitimate businesses and others that are scams or rather shady. You should complete your due diligence with any lender including a hard money lender. Never pay any fees to have a lender look at a property or consider financing a deal. This is a sign that they are not legitimate. Also, any lender who is willing to finance 100% of the cost of the property is likely to be a fraud. In most cases you will be charged a few fees for processing and maybe even a property appraisal but you will never see a loan document or the money that you need.

Know What You Are Getting Into

As with any business deal it is important to know who you are doing business with and what the terms of the deal are. Spending some time to learn about the lender and the process for a legitimate hard money loan will help you to select a reputable lender and sign a deal with terms that will work for both you and the lender.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

How Commercial Hard Money Lenders Differ From Traditional Lenders

A hard money loan is a non-bank loan. Some loans are not desirable for banks but they are for commercial hard money lenders who are looking at different criteria from their borrowers.

Commercial hard money lenders are not in business to crawl through your financial history of the past five years and determine that you have a good chance of making ten years of mortgage payments. They are in business to loan money because the loan is secured by the value of the property that is being purchased or by some other valuable asset in some cases. Your financial history, possible mistakes and indiscretions are far down the list of critical criteria that commercial hard money lenders are evaluating. There are a few other differences in the process and terms of the loan as well.

One of the biggest differences that borrowers notice are the fees associated with the hard money loan. A conventional loan would cost a few percent of the loan but commercial hard money lenders can charge as much as three times that of a traditional lender. The upfront fees are also more on a hard money loan. Conventional loans are around 1% of the total of the loan but a hard money loan can be as much as 5% for the upfront costs.

Loan terms are the next big difference. Traditional lenders can offer terms that range from five years up to about thirty years but a hard money loan is going to be from six months to a year tops. All of these differences seem to be in favor of the lenders and it can seem odd that anyone would ever choose to use a hard money lender. But the reasons to use a hard money lender become much clearer when you learn about the next two differences.

The First Borrower Benefit

When you approach a traditional lender for a loan, you know that you need to have a certain credit score and that there can be no blemishes on your credit history. You need to fit relatively well into the mold that the lender has for a borrower. If you don’t fit than you don’t get the loan. But a hard money lender is more interested in the value of the property that you are purchasing or the value of the item or items that you are using as collateral. The thought is simply that if you don’t make the payments then the hard money lender will take the property or other collateral and recover their investment.

The Second Borrower Benefit

This is where the old saying “Time is Money” comes into play. In this case the time is unbelievably faster than a traditional loan. A bank or other lender might claim to close a commercial loan in 30-60 days but in most cases it is more like 45-90 days if you are on the fast track. But a hard money loan can close in as little as 7 days. This is because there is not all of the red tape and processes that a large lender follows. There are rarely loan boards and or legal departments that need to be involved. If the collateral is sufficient then you are looking at getting the hard money loan that you need. So it is now a bit easier to understand why hard money loans are growing in popularity.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Reasons to Seek Commercial Hard Money Loans

There are many good reasons to seek commercial hard money loans. Understanding these reasons can help you to grow your business or even save it from failure.

Commercial hard money loans are known to have a higher interest rate than conventional commercial loans and for that reason, many business owners shy away from this type of lender or loan. But there can be several times when choosing to use commercial hard money loans is a very smart business decision.

There are often occasions when time is your biggest enemy. In the case of commercial real estate this can be very true. Finding the perfect property at a great price means that there is likely to be a lot of interest in it. So you need to be able to begin the purchase process quickly to ensure that you get the property. But waiting for two or more months to get a conventional commercial loan processed is just not going to work. Commercial hard money loans can normally be processed much more quickly than that and sometimes as quickly as just a day or two. Paying more for the loan to secure the property is better than losing the property.

And even if time is not a factor, there could be other reasons that you are not able to qualify for a conventional loan such as lack of liquid assets, income issues or the age of your business. Many new businesses are not able to provide the long term income statements and cash flow documents that a conventional lender such as a bank would require. But hard money loans do not have the same qualification criteria that conventional loans do. So this could be a great way for you to get the loan that you need even as a new business.

This Is Not Your First Mortgage

In most cases you would think that having another mortgage would be good for your credit. It demonstrates that you have been found to be creditworthy and that you are in good standing with another lender. But in the case of commercial loans having existing mortgages can put you into a high risk category. This means that other lenders will not finance a loan until you have paid off the existing one. So using a hard money loan is a good way to be able to hold both loans at the same time.

Higher Cost is better than Failure

Even though a hard money loan can cost more than a conventional loan, it is much better to pay for the financing than to face foreclosure. If you have been unable to make the payments on your property then you could be very close to defaulting on the loan and facing the loss of the property. This could also mean that your business could be in jeopardy as well. If this is your situation, then it is very smart to use a hard money loan to pay off your commercial property loan and seek new terms for the loan. It is much better to lengthen the term of your loan and pay more interest than to lose your property and your business.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Why Commercial Mortgages Cost More than Residential Mortgage

When you are considering the purchase of a commercial property you will quickly learn that commercial mortgages are more expensive. Understanding the reasons will help you to see why the increased cost is necessary.

As you begin to explore your options for commercial mortgages you will find that there are more fees associated with them and the interest rates are greater than a residential mortgage. This could seem surprising at first but understanding the addition risk that lenders are facing with commercial mortgages will help you to grasp why the fees and interest rates must be higher.

The most obvious difference in the two type of mortgage is the dollar amount. The average residential loan in the United States was just over $309,000 in January of 2017 and at that same time period the average transaction for commercial mortgages was $1,100,000. So these much larger numbers represent a higher risk for the lenders. It is a greater sum of money being borrowed so the lender wants to be certain that they will be able to recover their investment if the borrower defaults. In short, lenders look at a higher loan as a higher burden of repayment and also a higher chance of default.

There is also a greater volatility associated with a commercial loan. A person gets a loan based on their income or salary. This is likely to remain very steady unless the person loses their job. And in that case, they will find another job. Also, in most cases a person’s income rarely decreases and more often than not it increases. But the same is not true for a commercial loan. The loan approval is based on the revenue of a business which is much more likely to fluctuate. A slow period, a bad quarter or a change in the economy can have a much greater impact on a business’s revenue. Because revenue is dependent on the economy more than a person’s income is, there is a greater chance that a business could default due to lack of ability to pay the mortgage.

More Fees

There are also more fees associated with the process of applying for and getting a commercial loan. The amount of documentation required is much larger and therefore takes much longer to review and process. This accounts for some of the additional fees that are needed for administrative tasks. There are also more surveys and inspections required for the sale of a commercial property. The costs of these services are also passed along to the buyer of any commercial building or property.

More Processes = More Cost

As with anything, the longer it takes the more it costs. When the lender is required to complete a greater discovery process before approving a loan then the buyer should expect to pay more fees. It is also easy to understand that if a loan represents more of a risk to a lender then they will want to charge a higher interest rate for the loan. So knowing that the process is different can help a first time borrower to understand why the cost of a commercial loan is greater than the cost of a residential mortgage.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

The 5 C’s Every Commercial Lender Looks At

A commercial lender must decide which applications to approve and which to decline without personally getting to know the borrower. To make smart choices the lender will look at the 5 C’s to make their decision.

There are five basic lending criteria that every commercial lender will evaluate when reviewing a commercial loan application. Having a good understanding of the criteria and knowing how to best present your information can be a huge help in getting approved for a commercial loan. The first and maybe most critical is your capacity to repay the loan. The lender needs to be sure that you have a strong plan in place to repay the money you are borrowing. Your business plan is a good tool to demonstrate how you have that plan in place. In the end, if you can’t afford to repay the loan then even meeting all of the other requirements won’t get you a loan.

Capital is also important to your commercial lender. This is the value of the net worth of your company and also of you, the owner. In many cases the decision is based on the personal financial history of the owner as the business does not have enough credit history established. This leads to the third c, collateral. The commercial lender needs to know that you have the ability to guarantee repayment of the loan. The collateral might be the property that you are purchasing, the value of your inventory or of your equipment. But whatever you are offering as collateral, it needs to have a value in excess of the amount of the loan that you are requesting. This assures the lender that they can recover their investment even if you default on your loan.

Credit history is also an important factor. It gives the lender insight into how you have managed your finances and debt in the past. This document saves the lender the time of contacting all of the previous lenders that you have worked with or all of the vendors who have extended credit to your company. It is an efficient way for lenders to see your track record where finances are considered.

Character Always Matters

Character is a quality that is important for several reasons. First, it is an indication of how you will react in a difficult situation such as if you are having financial issues. A person of character will still find a way to pay their bills. It also speaks to the way that you do business and how successful you could be in the business world. A person with poor character will not last in the business world. Customers will not work with an unethical business.

Understand The Impact of the Five C’s

When you are preparing your loan application packet be sure to address all of the 5 C’s. This will provide the lender with all of the information that they need to know that you are a trustworthy person and that your business can afford the loan that you are requesting.

Technorati Tags: commercial loans,commercial lending,commercial mortgage

Learn To Be A Fix & Flip Investor

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Tuesday, October 10, 2017

What a Commercial Lender Is Looking for in Your Credit History

A commercial lender will want to review both personal and business credit when evaluating a loan application. This is because in many cases, the owner of the business will need to personally guarantee the loan.

Establishing Business Credit

Good Credit Is Critical

Learn to Think Like Commercial Lenders

Securing a commercial mortgage is never an easy process. But you can greatly increase your odds of an approval by learning what commercial lenders are looking for on loan applications.

Numbers Are Not Everything

Demonstrate Your Professionalism

Learning More about Commercial Hard Money Loans

Commercial hard money loans are a good short term option in some cases. Knowing more about securing the loan will help you decide if this is the tool that you need to purchase a property.

Beware of Certain Less then Legitimate Lenders

Know What You Are Getting Into

How Commercial Hard Money Lenders Differ From Traditional Lenders

A hard money loan is a non-bank loan. Some loans are not desirable for banks but they are for commercial hard money lenders who are looking at different criteria from their borrowers.

The First Borrower Benefit

The Second Borrower Benefit

Reasons to Seek Commercial Hard Money Loans

There are many good reasons to seek commercial hard money loans. Understanding these reasons can help you to grow your business or even save it from failure.

This Is Not Your First Mortgage

Higher Cost is better than Failure

Why Commercial Mortgages Cost More than Residential Mortgage

When you are considering the purchase of a commercial property you will quickly learn that commercial mortgages are more expensive. Understanding the reasons will help you to see why the increased cost is necessary.

More Fees

More Processes = More Cost

The 5 C’s Every Commercial Lender Looks At

A commercial lender must decide which applications to approve and which to decline without personally getting to know the borrower. To make smart choices the lender will look at the 5 C’s to make their decision.

Character Always Matters

Understand The Impact of the Five C’s

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