As a real estate investor, the thought of purchasing a commercial property can be an exciting (and intimidating) prospect. However, before you can make your investment dream a reality, you must consider one critical aspect of the deal - financing.
Commercial real estate financing can be a complicated process, and qualifying for a loan can be a challenging task. Therefore, to avoid disappointment or delays in your commercial property acquisition, it is essential to take steps to ensure you qualify for financing.
Here are five critical steps you can take in advance of entering into a contract to purchase a commercial property to ensure you can qualify for financing:
Review Your Credit Report:
The first step in qualifying for a commercial property loan is to review your credit report. Your credit score is a critical factor that lenders use to determine your creditworthiness. A low credit score can negatively impact your chances of obtaining financing. Therefore, before you approach a lender, ensure your credit score is accurate and in good standing. You can obtain a free copy of your credit report from any of the three credit bureaus - Experian, Equifax, and TransUnion. Review the report for errors, inaccuracies, or fraudulent activity, and take steps to resolve them before approaching a lender.
Build Your Cash Reserves:
Lenders prefer to work with borrowers who have cash reserves. The reserves provide a safety net in the event of unforeseen circumstances or emergencies. Lenders may require you to have six months or more of mortgage payments in reserves. Therefore, start building your cash reserves early by cutting down on unnecessary expenses and saving more.
Gather Financial Documents:
To qualify for a commercial property loan, you will need to provide financial documents to the lender. These documents include tax returns, bank statements, personal financial statements (PFS), schedules of real estate owned (SREO), and other documentation that proves your income and assets. Gather these documents in advance and ensure they are up-to-date and accurate.
Shop Around for Lenders:
The financing options for commercial properties can vary significantly, and you need to shop around for lenders who can provide you with the best deal. Take the time to research and compare rates, terms, and conditions from different lenders. You can also work with a commercial mortgage broker who can help you find lenders that match your financing needs.
Hire a Professional Commercial Real Estate Team:
Working with a professional commercial real estate team can make all the difference in securing financing for your commercial property purchase. A team that includes a commercial real estate agent, a real estate attorney, and a mortgage broker can provide you with invaluable guidance and support throughout the financing process. They can also help you navigate the complex legal and financial requirements associated with commercial property purchases.
Conclusion:
Securing financing for your commercial property purchase is a critical aspect of your investment journey. By taking the necessary steps to ensure you qualify for financing, you can position yourself for a successful transaction. Remember to review your credit report, build your cash reserves, gather financial documents, shop around for lenders, and hire a professional commercial real estate team to guide you through the process. With these steps in place, you can confidently move forward with your commercial property purchase and achieve your investment goals. Happy hunting!
Author: Jared Repka
About the Author:
Jared Repka is the Co-Founder of Bison Financial Group in St. Petersburg, FL.
Bison arranges debt and equity financing for commercial real estate investors and developers.
Bison has relationships with investors across the risk spectrum funding acquisitions, renovations, and new construction.
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Bison Financial Group