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Applying for a Commercial Real Estate Loan: What You Need to Know

Although many business owners are experienced at applying for residential loans, the truth is that qualifying for, and obtaining, a commercial real estate loan can be a much more challenging process.

You may be thinking to yourself, “These loans can’t be too different from one another, right?” The key difference between the two is that commercial property lenders tend to focus much more on underlying collateral while residential lenders focus more on your personal finances.

If you are new to this, don’t be confused by all of this jargon. The financial experts at Hunt Mortgage Group have extensive knowledge of commercial real estate financing. To clear up any confusion, follow these essential tips before you apply for a commercial loan.

Identify Your Property Type

While this step may seem obvious, you would be surprised how many owners or buyers aren’t fully aware what type of property they own. The truth is that sometimes it can be confusing and unclear as to what constitutes as a commercial property. In our experience, we notice that this trend usually pertains to multifamily buildings.

So, what is considered commercial real estate? Most lenders typically consider any apartment property containing more than 4 units as commercial real estate, not residential.

Do Your Research

Any form of lending, especially commercial real estate, has it’s own unique language. If you are unfamiliar with the industry lingo, you should absolutely do your best to learn it because miscommunication is common and you could easily become lost in translation.

To prevent any confusion, familiarize yourself with certain concepts so that it is easier to correspond with commercial loan lenders. When you are familiar with industry lingo, both parties will be put at ease. You will understand all the terms and conditions during negotiations, and your lender will feel more confident about your ability to repay your loan!

Hunt Mortgage Group understands you may not be an expert with every concept. But in our experience, fully understanding these three terms will help the process run smoothly:

  • Debt Service Coverage Ratio: This is a quick calculation that measures your ability to make your monthly loan payments.
  • Loan-to-Value (LTV): This is the amount of money you can borrow based on your property value.
  • Cap Rate: This provides lenders and borrowers with a quick and easy way to compare different commercial property values. Keep in mind, however, that cap rates will differ based on location.

Find a Loan that Corresponds with your Goals

There is no one-size-fits-all commercial real estate loan. Loans differ based on property type, cash flow needs, as well as other factors. As a result, you should locate a commercial real estate loan that best fits with your needs and your desired goals.

Make sure that you discuss these circumstances with your lender so that you can learn about all options available.

Patience is a Virtue

While this may be obvious, you need to be patient when applying for a commercial real estate loan. Not only does it take time to get approved for a loan, but also if you give an incomplete loan presentation, your lender will be delayed in evaluating your loan. Avoid this by planning ahead; do your research; familiarize yourself with important concepts that may come up in conversation.

When you eventually meet with your lender be sure to provide the appropriate documents such as business tax returns, profit and loss statements, rent rolls, and property leases. Failing to provide these documents will only hurt you in the end because it will delay the process as well as reduce your chances of receiving your loan.

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