How to Get a Commercial Real Estate Loan

In this blog, we will discuss what loans are available to you, what lenders look for when they check through your loan application, and where to get the most accurate commercial real estate data to complete your application with a much higher potential for success.

Commercial real estate (CRE) is a building in which at least 50% of the floor space is used strictly for business purposes. This includes buildings used for restaurants, stores, manufacturing, storage, hospitals, warehouses, and apartment complexes (even though people live in them, business is still technically conducted). For those who are seeking to invest in commercial real estate for the first time, you may be wondering where to start when purchasing commercial property. Applying for a loan is a good first step.

In this blog, we will discuss what loans are available to you, what lenders look for when they check through your loan application, and where to get the most accurate commercial real estate data to complete your application with a much higher potential for success.

What Kind of Loans Are Available for Real Estate?

If you are interested in buying CRE, there are seven types of commercial real estate loans you might consider applying for to pay for it.

  1. Conventional Loan: This is the type of loan given out by banks. They usually have fixed terms and rates. This type of loan is ideal for people in good financial standing.
  2. Government Insured Loan: These are loans that the government offers to help pay for mortgages. The Federal Housing Administration, the US Department of Agriculture, the Small Business Administration, and the US Department of Veterans Affairs all offer loans. 
  3. Adjustable Rate Mortgage: This type of commercial mortgage has an interest that fluctuates as market conditions and lender terms change. This type of mortgage is ideal for people who do not plan on investing in the property for more than a few years as it could save you money on interest rates.
  4. Interest Only Mortgage: Lenders who offer this loan allow you to pay only the interest  for the first 5-10 years. This mortgage is ideal for people who may struggle with paying on it monthly.
  5. Seller Carryback Financing Loan: This type of loan occurs when the person selling the real estate takes out a second mortgage on the property and lends the money from it to you, the buyer. You will then be expected to make payments on both that mortgage and the initial one each month.
  6. Owner-occupied Loan: This loan only applies for properties used for duplexes or multi-family homes. For this one, you would use rental income to accept liability on a loan with higher loan limits.
  7. Agricultural Loan: This loan is only available for properties with 10 or more acres of land.

What loan is best for you depends on your financial system as well as the type of real estate you want to invest in. No matter what loan you decide to apply for, though, make sure you use your business entity to apply for the loan instead of applying in your own name. This will prevent your personal finances from taking the hit if you have to default on your CRE loan.

What Do Commercial Lenders Look For?

Even though the loans above vary, there are some major similarities in what lenders look for when giving out these loans. As with other types of loans, commercial real estate lenders want to make sure that you have the financial means to pay back the loans they give you. They will look at:

  • Business Finances: The lender will want to make sure that your business makes enough money to repay the loan. You will have to provide them with the business’s tax returns, your financial books and reports, at least three months of bank statements, details on any collateral you have to offer, a third-party appraisal of the property, and the business plan.
  • Business Credit: Not only will the lender look at your current finances, but they will also look at your credit to make sure that you have paid back loans in the past. Your business’s credit score will determine the terms of the loan if you are approved, including interest rate, payback period, and how much of a down payment you will need to make. The minimum required FICO Small Business Scoring Service (SBSS) credit score for a loan is 155 if you are interested in SBA commercial loan 7(a), but there are many exceptions if you do have a lower score. 
  • Personal Finances: Lenders will look into your financial past in search of any loan defaults, low credit scores, foreclosures, or other poor financial history that could show you might not pay back a CRE loan. 

How to Improve Your Chances of Getting a CRE Loan

There are several steps you can take to improve your chances of getting your loan application approved. They are:

  1. Improve your personal credit score. This includes paying off some of your already existing debt.
  2. Add more of your property to your list of collateral.
  3. Find a cosigner or investor who can make payments on the loan if you can’t.
  4. Choose to pay a higher interest rate or bigger down payment.
  5. Find out everything you can about a property before investing in it. Canyon Data provides exhaustive datasets on commercial properties along with any comparables to help you make the most informed decision.

Preparing for Your Loan Application With Canyon Data

Before you apply for a loan, you want to make sure you have all the information you need about a property to make sure it’s actually worth the loan. Canyon Data has all the property information you need to make a smart decision about what property to invest in. We update our data every 30 days to make sure you get the most accurate information possible. Each property goes through a five-step validation process to ensure that it is accurate. To learn more or to start looking for property in the Boise, Idaho metro area, contact us.

What is the Best Site for Commercial Real Estate? Canyon Data Meets Advanced Needs with Advanced Technology

Here at Canyon Data, our mission is to fill the gaps and solve the incomplete data problem in the CRE industry. Our data-driven insights will give you the information you need to determine the significance of a potential CRE investment. A subscription with Canyon Data provides the data to conduct an in-depth analysis of the benefits and risks involved with a particular property. Gain unprecedented insights with a Canyon Data subscription today. Get a Subscription