5 Tips to Get You Favourable Terms on Your Commercial Property Loan

commercial property loan

5 Tips to Get You Favourable Terms on Your Commercial Property Loan

Investing in commercial properties is one of the best ways to diversify your investment portfolio. This is especially true if you already have a solid business plan and a few people who have already expressed interest in renting out a spot in the property you wish to turn into an investment. In many cases, however, those investing in commercial properties will need to take out a commercial property loan to help finance their investment.

Contrary to what some people may initially believe, commercial property loan applications are very different from mortgage applications you would make if you wanted to buy a residential property. Not knowing these differences beforehand may lead to your application being denied. Before you start applying with lenders, make sure you follow these tips to help you secure a favourable commercial property loan:

Prepare All Your Documents Beforehand

Start off with the basics and get all the necessary documents in order. These documents often include tax returns, copies of leases, bank statements, asset and liability statements, and others. Lenders will want to see these documents immediately upon request. Not being able to fashion them with a copy right then and there is often seen as being unprofessional and may impact your ability to get approved for a commercial loan.

Take a Quick Look at Your Credit Report

Although a commercial property loan is different from the mortgage you took for your home, lenders will still take a look at your own personal credit report to help them make a decision. Generally, lenders will want to see a clean credit report with a score that of 680 or higher. Having no recent bankruptcies or foreclosures on your record will also help your cause significantly. Make sure you get a copy of your credit report before shopping for a loan.

Work with a Broker

Commercial property loans are notorious for taking a few months to complete. As such, it is a better idea to apply for a loan with multiple lenders at the same time. The best way to achieve your development financing would be to work with business finance brokers like the team at IBN Direct. Not only do you save on time, but you can also compare different loan terms and find the best one for your situation. In some cases, a lender’s relationship with a broker can help net you better rates or more flexible terms that an individual would never be able to get on their own.

Create a Detailed Business Plan

One of the more important documents a lender will ask you for is a business plan. This plan should outline your cash flow, business structure, and business feasibility among other things. Your business plan should be as detailed, yet concise, as possible. This will help a prospective lender better understand what your business is about and if approving your loan will be a good business deal for the lender. Clear business plans can help cut down approval time by a few weeks as there won’t be a real need to regularly contact you to ask questions.

Get Your Hands on a Copy of the Tenancy Schedule

If you are taking on a loan to purchase a commercial property that already has existing tenants, it would be a good idea to get a copy of the tenancy schedule from the seller. This schedule should clearly state the business names of the tenants, their nature of business, rental amount, lease commencement and expiry date, and other important details. This is important as the lender will gain a clearer idea of how much money you will stand to make from this investment. Strong numbers will help ease any fears a lender may have since it increases the likelihood you’ll be able to pay back your loan in full.