There are numerous commercial endeavors for which you would need to procure funds, and these can include the building of multi-family rental properties, retail spaces, such as malls and shopping centers, office buildings, and hotels.
Numerous ways exist in which to procure backing for your plans to develop, and these can include commercial mortgages, construction financing, bridge loans and an SBA 7(a). These vary in the details, and your specific situation will help determine which one is right for you.
Your business plan is going to factor into this process significantly, and you would do well to spend time and effort in compiling this information. An advisor can help you tremendously in this regard as well, helping you to formulate your needed materials.
It will be necessary to provide details regarding the land and structure as well as its intended use. If the edifice is part of generating an income, you’ll need to include data explaining your strategy for attracting customers in this document. In addition, you also must submit paperwork going back three to five years if you’ve been in business that long.
Your bank will want to see accounting reports and tax returns, and they’ll also need to review your asset statements. They will consider your own financial history and creditworthiness even though the loan will be taken out in the name of the business and not your own as an individual.
Details To Be Aware Of
A commercial real estate loan, in many ways, is going to be similar to a mortgage secured by a private resident for their home. A lien will typically be placed on the property in question, and it will also serve as collateral on the amount borrowed.
You will be required to pay a certain amount down, and this will be much higher than that required of a homeowner, as it will fall between 20-40% of the total cost. You will have a monthly payment, but unlike a residential property, you can acquire a term lasting less than three years. One that is long term will be between five and twenty years in length.
Lenders are looking for lower loan values and are going to be focused on the returns or liabilities associated with the site in question. It’s critical to remember that the lender will be looking for risks at the same time that the developer will be honed in on possibilities for success.
Your knowledge of the market into which you are delving and your connections in that area are going to weigh heavily in the decision to approve your loan. In addition, your relevant industry experience is going to help sway the powers that be that you are a safe bet.
Nuts and Bolts
Different loan types are referred to as conventional money, alternative money, and hard money. Conventional money will carry an interest rate of four to six percent and a loan to value ratio of up to 80%. You will need to have a strong credit score, and the bank is going to require significantly more proof of creditworthiness. This will draw out the approval process to 60 days or more.
Alternative money is lent at a higher rate of between six and eleven percent, and your loan to value ratio will only go as high as 70%. In this instance, the value of the location will play a bigger role in the process than will your credit score. Closings are completed faster and can be done in just 30 days.
Hard money is more expensive and can come with rates as high as twelve percent attached, and this will not include any tacked-on fees. Loan to value ratios top out at 65%, and most borrowers will need a good exit strategy in order to secure refinancing at a later date. Strong collateral is a must in this case.
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