Acquiring a commercial real estate loan is tougher than procuring one for your home. Additionally, the dangers are much higher. Handle things wrong and your purchase deposit could be lost or you might be forced to cover third-party appraisal fees. Money could even be stolen. Work to prevent your loan request from turning bad by recognizing the following realities of the business.
1. Real Estate Loans Take Longer Than They Say
Commercial real estate lenders often exaggerate the speed of their loans. Commonly, they’ll insist the processing period is merely 45 days, whereas a three-month wait is more likely the reality.
2. More Applications Are Better
You are not locked into one lender. Apply to at least four to maximize your odds of approval. Additionally, among those who do accept your application, you can pick whichever one is most favorable.
3. Lenders Are Required To Order the Appraisal
Try submitting an appraisal ordered by anyone else and the bank is mandated to reject it. Be certain the right party makes the request.
4. Environmental Laws Matter
Because lenders that close on contaminated properties get stuck with cleanup costs, most require environmental reports. Avoid getting involved with real estate where hazards exist.
5. Beware of Scam Artists
Some rip-off professionals pretend to be lenders so they can run off with your application fee. Perform a background scan on anyone before handing over a check.
6. Demand Favorable Terms
Reputable lenders will provide what is known as a term sheet. These are official expressions of interest that include the loan’s expected parameters. Although not legally binding, they provide a good representation of the conditions they are willing to agree upon. Negotiate changes regarding anything you deem unfavorable.
7. Location Is Critical
Lenders closer to your property will offer you a better deal than those far away. If a nearby lender makes a worse offer than one from another state, apply bargaining pressure to receive a more pleasing agreement.
8. Cash Flow Equals Power
If your company is high volume, use the prospect of a deposit relationship to incentivize a better deal. Gently remind the lender of the benefits such an arrangement will provide.
9. Size Matters
Take small requests to smaller banks. Likewise, save bigger appeals for larger institutions. Matching your request with the appropriate lender will increase your odds of securing an advance.
Obtaining a commercial real estate loan can be a thorny prospect. Set yourself up for approval and favorable rates by being mindful of the above factors.