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Navigating of securing a commercial real estate loan can be daunting. The fate of your purchase often hinges on whether you secure approval from the bank. However, taking several crucial steps can significantly increase your chances.
“Put yourself in your banker’s shoes,” advises Jean-Sebastien Vincent, Director of Corporate Financing at BDC. “Ask what will put them at ease about granting you the loan.” Marc No?l-Corriveau, also a director for Corporate Financing, adds: “Many businesses make a poor impression with banks because they didn’t do their homework before the meeting.”
Here are seven essential steps to boost your chances of getting approved.
Start by ensuring that your company’s finances are in order. The most critical requirement for securing financing is having a profitable and growing business, Vincent notes. “A business with no profitability has poor prospects.”
Carefully evaluate your real estate requirements. Banks do not view hasty or ill-planned projects favorably. They want to see evidence of solid planning.
Determine your budget, desired locations and square footage needs; whether you want to buy or lease; and how you will accommodate projected growth. Many businesses don't do proper planning before buying real estate, No?l-Corriveau explns. “They up with spaces that are too large, too small, or in the wrong location.”
The loan-to-value ratio-how much of the property’s value the bank will finance-is a key factor. Banks generally offer to finance 75 to 100 of the value of commercial real estate, deping on its condition and resale potential. Any shortfall must come from your company's working capital or personal funds.
Key variables include:
Loan-to-Value Ratio: A higher ratio means more money remns in your business for growth or to cover cash flow shortages.
Amortization Period: For term loans, this typically ranges from 15 to 25 years. You may want a longer period to keep more money in your hands now.
Repayment Holidays: Banks can offer flexibility on loan repayments. For example, you might seek capital repayment holidays for one or two years post-transaction to absorb the costs of moving.
Banks may allow some or all renovation costs to be rolled into the term loan if they add value to the property. Be sure to explore these options thoroughly-they can open up significant opportunities for your business.
Locate the right property and negotiate the best purchase price with our free guide for entrepreneurs: Buying Commercial Real Estate.
Consulting experts in real estate and finance can provide valuable insights and ensure you make informed decisions.
By following these steps, you can increase your chances of securing approval for a commercial real estate loan and lay a solid foundation for the growth of your business.
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Commercial real estate financing Secure loan approval Business profitability assessment Real estate planning tips Loan to value ratio Renovation cost negotiation