UNDERSTANDING COMMERCIAL REAL ESTATE FINANCING

Credit is the lifeblood of American business. It helps an entrepreneur get started, purchase equipment, build inventory, develop new lines of credit or expand. Aside from personal savings, banks are the major source of capital for starting new businesses. According to most reports, 85% of loans to operate a small business come from banks. If you need financing for your small business, begin preparing long before you enter the bank. Understanding commercial real estate financing should be the first thing on your agenda. By knowing what the lender is going to need from you, you can bolster your chances of getting the financing.

In preparation for striking out on your quest, there are some questions you need to ask yourself. How much do you need and what are you going to use the proceeds to accomplish and for how long? Are you going to borrow the money or will it be some other legal entity such as a lawyer or a business partner? How are you going to repay the loan and under what terms? What are your assets that will convince the loan officer that you are a good credit risk?

When you ask the bank for a loan, you are essentially entering into a partnership with the bank. You have heard the answer when someone asks if the property belongs to you. It belongs to me and the bank. It is true. Before entering the market for a loan, it will help to have an understanding of commercial real estate financing. Banks sell loans. Look for the best combination of price, quality, and reputation of provider. Getting a loan comes down to your credit worthiness.

Banks that have programs for small businesses usually rely on the character and credit history of the borrower asking for the loan. Banks do not lend based on the value of the collateral that you can pledge. If your business does not have the necessary cash flow to repay the debt, the value of the collateral does not matter. You are not going to be able to pay back the loan. Again, it is important to understand commercial real estate financing.

Requirements for a small business package vary from bank to bank. There is certain paperwork that your bank will require. First, you will need a completed loan application where you will state your request, your desired terms, your business information, personal information, etc. A bank usually requires three years of Corporate Financial Statements. Remember that more is better. Usually banks require that anybody with at least a 20% stake in the business guarantee the loan. You will need three years of personal tax returns, articles of incorporation and an occupational license. Most banks will require a tangible asset as security for loans above $100,000.

Understanding commercial real estate property financing is key to your success. One of the sources of financing is the Small Business Administration. SBA is the nation’s largest single financial backer of small businesses. The SBA provides technical, financial, and management assistance to help Americans start, run, and grow their businesses. The primary function of the SBA is not lending money, but acting as an insurance agency for banks. The three types of loans that are of interest to you as a small business owner are: the lowdoc loan program, the 7a loan guaranty and the CDC-504 loans. The SBA does not lend money directly. You will have to contact a local lender and discuss your loan proposal with one of their loan officers.

Getting a loan for your endeavor is a matter of doing your homework before you walk into a bank. If you do not have an understanding of commercial real estate financing, you will not get the loan you want.