Tips for Getting the Best Commercial Real Estate Mortgage Terms
Commercial real estate loans tend to be a bit harder for businesses to get than they are for consumers, and consumers have noticed that lenders are getting pickier in recent years. That means your small business needs to know all the tricks possible to get the best rates when you’re extended an offer of a mortgage. Not only do these methods save you money by qualifying you for lower interest rates and closing fees, but they also tend to increase the chances you will be approved in the first place. Closing a loan can still be a lengthy process, but the more attractive your application package, the more likely it is a decision will be reached promptly.
Polish Up Your Credit Score
Business credit scores are used to determine the level of risk a potential borrower poses, and as a result they impact both the interest charges and the likelihood of being approved. If you’re above the lender’s required minimum it probably isn’t hurting your chance of getting approved, but it might still be costing you money. The higher you can push this score through concentrated cash flow management and additional creditors reporting, the better your terms will be.
Watch Your Cash Reserves
You’ll need working capital to make the down payment, and commercial real estate requires a larger down payment than a personal residence. Instead of 10 or 20%, you’ll probably be required to put down 30%. Programs requiring less tend to increase the cost of capital to reflect the higher risk involved in a property with less equity off the bat. That down payment also needs to be a small enough portion of your reserves to leave you with adequate burn time for business emergencies and disruptions. If losing that money depletes your ability to weather a low demand period or an emergency shutdown, it can hurt your chances of getting approved for the terms you want.
Write a Stellar Business Plan
Unlike personal mortgages, traditional loans for commercial real estate purchases tend to require a business plan. If you’re buying facilities to house your operations, the plan should demonstrate how that investment positions you to prosper. It could be because if increased space or space that better suits your needs. Other reasons that support the purchase include decreased overhead due to the loan payment being less than a lease, but that’s not always the case if you’re also expanding into bigger facilities so you can hire more employees to meet demand. Make the reasons reflective of your current circumstances while providing sober projections that demonstrate the benefits of the purchase and you’re always more likely to get approved with great terms, especially if you’ve already got good credit.