How to Get Funding for Your Commercial Property

Whether you have successfully built up a business or are just beginning with a small startup, sooner or later you will be wondering whether to invest in commercial …

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Whether you have successfully built up a business or are just beginning with a small startup, sooner or later you will be wondering whether to invest in commercial property.

This could be anything from a single shop to an office block, shopping center, warehouse or hotel.

Purchasing a commercial property could well turn out to be one of your best financial decisions; you are in the driving seat, you have the chance to build equity and owning commercial property may also offer tax advantages.

According to CBRE, credit for commercial property is readily available with banks now offering nearly half of all non-agency loans.

The market for commercial mortgages looks set to remain favorable to borrowers for the remainder of the year and as the yield curve flattens it offers an opportunity for long-term loans with no increased costs.

However, finding a commercial mortgage can be a challenging task and you should weigh up the decision carefully. A little preparation to help you understand your options and the steps involved in applying for a commercial property loan will greatly assist you in gaining the finance you require.

Finding a lender

A bank or building society where you have your business account may seem the obvious choice for a commercial property loan, but this is not the only place to turn to.

Specialized commercial brokers can offer deals for specific business sectors that you would otherwise be unable to access.

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So, shop around for a lender with a proven track record of providing the type of credit you are seeking.

Qualifying for a commercial loan

A lender will look at the overall picture of your business before deciding whether to offer you finance. Aspects that will be taken into account include:

  • The value of the property
  • Loan-to-value ratio
  • Liquidity
  • A good credit report
  • No recent bankruptcies, tax liens or foreclosures
  • A 10% minimum down payment in cash
  • Your business should be more than 3 years old
  • The debt service coverage ratio (DSCR) of your business should be at least 1.15

As a candidate for a commercial property mortgage, your next step is to look at your figures and obtain a loan on the best possible terms.

Here is a basic step-by-step guide to obtaining funding for a commercial property:

Step 1. Assess your budget

Purchasing a commercial property is a major expansion for any business and you need to be sure that you can afford it by analyzing your budget in fine detail.

Be honest to yourself about what your business can afford, and don’t forget to always assume that you can negotiate the price of a property to meet your budget.

A lender will need to know that you can make the repayments on a loan and you should also be clear on the level of monthly repayments your business can afford.

Step 2. Prepare your business plan

Before a lender will consider offering you credit, they will take into account a plethora of factors.

Prepare a detailed business plan to help them understand the nature of your product or services; how much experience you have, your pricing structure, your customers and your predictions for future growth.

Step 3. Believe in your business

If you are confident that your business will benefit from the purchase of a commercial property, this belief will shine through when you are applying for finance.

Do your homework and be ready to answer any questions regarding your liquidity and projected growth truthfully and accurately.

If you are asked questions to which you don’t have the answers, don’t read this as a criticism of your business but learn from it and be more prepared next time.

As the owner of a business, the attractions of owning your own commercial property are tempting. You are your own boss, you can control costs, and you can raise the visibility of your business with more prestigious premises or with advertising.

With careful due diligence and preparation, commercial property can be a profitable investment that will enhance the growth of your company.

Author Bio

Bruce Hakutizwi is the USA and International Accounts Manager for BusinessesForSale.com, the world’s largest online marketplace for buying and selling small and medium size businesses. Bruce has over 7 years’ experience working within the US business transfer marketplace connecting buyers and sellers. 

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