It’s usually a little more difficult to qualify for commercial real estate loans than it is to qualify for personal loans. Some of the typical requirements for qualification are described below, and if you can meet these requirements, chances are you’re a good candidate to qualify for a commercial real estate loan.
Your Business Must Generate Sufficient Revenue
In order to support the debt of a commercial real estate loan, your business must be able to generate revenue which can cover all payments. There is a simple formula for calculating this, which is to divide your net operating income by the annual payment you would have to make on any commercial real estate loan. If this number is 12 for greater, you’d be in good shape.
You Must Occupy the Building
Your business would have to occupy at least 51% of the total space of the building, and this constitutes owner-occupation. If this is not the case, you would have to apply for an investment property loan rather than a commercial real estate loan.
Good Personal and Business Credit
Virtually all lenders will examine both your personal credit score and your business credit score, and they will require that you have excellent scores for both. The one situation where you might be able to get by with lower credit is when the property you’re going to buy will serve as collateral for the loan.
Property Value Can Serve as Collateral
To help guarantee the commercial real estate loan you’re applying for, you have a better chance if you put up the property itself as collateral. In fact, many lenders are much more concerned about the value of the property than about your credit score. The majority of commercial real estate lenders like to see a 60% loan to value ratio before approving a commercial real estate application.
Do You Qualify for a Commercial Loan?
If you’re involved with commercial real estate and are in need of a loan, we may be able to help. Contact us at OneClick Commercial Funding so we can discuss some options with you for funding your next real estate transaction.