Getting commercial loans requires more than just filling out an application. Knowing what lenders are seeking from a borrower will help you to understand the process and succeed when others fail.
Commercial loans are certainly more difficult to obtain than personal loans. And there are some very good reasons that lenders are being more selective about approving loan applications. Understanding what lenders are looking for and why they are selective will help you to meet the qualification criteria and present your business in a more favorable light.
All lenders are in business to make money and they only accomplish that when they select borrowers who will repay them with interest. So you can see why it is important for lenders to weed out the less than creditworthy applicants. That is also why lenders look more closely at commercial loans. The loans represent more risk due to the more volatile nature of a business’s finances. Sudden shifts in the economy rarely have huge impact of a consumers finances but they can have a significant impact on the financial health of a business or even an entire industry. So commercial lenders protect themselves by thoroughly scrutinizing any applications for commercial loans.
The other means of protection that lenders have is the collateral for the loan. This is normally the property that is being purchased with the loan money. Lenders want to be certain that the collateral value is substantially larger than the loan amount. This ensures that the lender will have recourse to recover their money if the borrower defaults on the loan.
Show the Lenders What They Want
Knowing that the lenders only real concern is that they can and will get their money back and hopefully the interest that they are charging, you need to demonstrate to them your ability to repay the loan. In many cases this can be accomplished by compiling three to five years of financial records, tax records and bank statements. You will let the lender review the documents and see that you have experienced steady growth and that you are profitable. You will also want to provide some added security for the lender. As the guarantor on the loan, you need to show your personal ability to assume the loan payments if need be. This will require submitting your personal financial documents to show net worth, tax records, bank statements and an asset schedule.
Paint the Right Picture
It is true that there can be some obstacles in your path when you are looking for commercial financing. But lenders do want to lend money, they just want to be assured that they are not throwing their money away. Understanding the motivation for all of the strict loan qualifications and the documentation that are required can actually help you to get approved for your loan. You simply need to position your business to look and be profitable and successful. Increase your revenue, decrease spending and build your cash reserve. Showing strong financial health will make commercial lenders eager to do business with you.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
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.
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