It’s not uncommon for businesses to seek commercial loans, particularly when they want to expand their business, servicing equipment, or embark on special development projects. But more often than not, companies usually fall short of understanding the process involved with seeking a commercial real estate loan, which can sometimes end in disaster. In order to confidently secure the right commercial loan for your business, the top lenders at Hunt Mortgage Group rounded up 10 common mistakes to avoid when seeking a commercial real estate loan.
1) Not Shopping Around for the Right Lender
You want to make sure that you have thoroughly researched and exhausted all options. Would you purchase an expensive product without first conducting research? Therefore, you should always familiarize yourself with commercial loan terms offered by a number of different banks and other commercial lenders. While competition among lenders may keep loan terms relatively similar, will obtain a better deal with patience and attention to details during your research.
2) Going Straight To A Familiar Lender
While it is beneficial to have a rapport with a lender, particularly when you need a loan, invest your time by checking out some of the other possibilities before going straight to your favorite lender. Also, new offers and products surface often, so see what new real estate loans options are available.
3) Not Selecting An Experienced Lawyer
Do not hire an inexperienced lawyer! Seeking a commercial loan is not the time to hire a familiar lawyer or one that is affordable but with less experience. Instead, consult with a commercial real estate lawyer with a proven record of negotiating the type of real estate loan you seek. This ensures you will receive the best loan terms available on the market.
4) Failing To Negotiate
Don’t accept the loan terms at face value; try to negotiate if possible. Your lawyer will ensure you understand each fine point when reviewing the commercial real estate loan offer. Furthermore, a good lawyer will ensure you walk out with the best loan for your business.
5) Not Creating A Business Plan
You should always have a well thought out business plan when seeking a loan, or any type of funding. Take the time to develop a detailed business plan with set goals before seeking a loan. Your business plan should also include all the necessary financial and operating data that lenders will need to see. This imperative information will help lenders evaluate if you are a responsible business owner with reasonable goals. Be sure to include all necessary documentation during your appointment to prove you are an ideal candidate.
6) Not Creating A Budget
Lenders are more likely to give you a loan if you can provide a detailed explanation for how you plan to spend your loan over the entire term. Lenders will also expect to see a timeline showing when you anticipate finishing the planned project.
7) Not Having Alternate Funds
Always try to have cash on hand before applying for a commercial real estate loan. Lenders look to see that you plan to fund a portion of the project with your own money.
8) Not Reviewing Your Balance Sheet
Make sure that you’re capable of repaying the loan while still having enough funds to run the business properly. To do this, review your balance sheet and analyze your cash flow and liabilities to ensure you will have enough money before entering into a commercial real estate loan agreement.
9) Not Seeking SBA Advisement
It’s still in your best interest to communicate with the Small Business Administration (SBA) to see what loans they can help you attain and additional advisement. The SBA currently holds a portfolio of nearly a quarter-million loans, making it the largest single financial backer of businesses in the United States.
10) Being Ill Prepared
Be sure that you have all documentation in order before applying for a commercial real estate loan. This includes a copy of your financial statements for the most recent business year; if not, you must provide at least a draft or interim financials. Be prepared to show why and how the property or project makes fiscal sense.
Your Next Step With Hunt Mortgage Group
Before applying for a commercial real estate loan make sure that you have a valid purpose for taking out a commercial loan. Failing to have a definite purpose before starting your business or project will make it more difficult for you to persevere through any problems you may encounter.
Hunt Mortgage Group understands the loan process with a team of financial advisors dedicated to helping borrows avoid common mistakes when applying for a commercial real estate loan. Are you ready to get a commercial real estate loan? Contact the experts at Hunt Mortgage Group to start your project today!