Commercial Property Loans: A Recipe for Success
Commercial property loans allow businesses to purchase land, buildings, or other property without draining your finances. Like a home mortgage, a commercial property loan uses the property being bought as collateral against the loan.
Unlike the pre-approval you might get for a home mortgage, though, approvals for commercial mortgages are based on the property you're interested in buying. A solid business plan and careful evaluation of the property are essential to being approved for a commercial property loan.
- Choose the right property
When buying a new property for your business, location is essential. Your real estate agent should help you evaluate foot and vehicle traffic, zoning regulations, and previous uses of the property.
The commercial property loan you get will often be dependent on numerous factors about the property itself, including passing an environmental inspection and meeting fire safety codes. You may need to work with a fire alarm vendor to upgrade sprinklers and smoke detectors.
- Prepare for the commercial property loan application
Your lender will need to be convinced that your new property will make money before giving you a commercial property loan. You'll need to present detailed financial reports, including balance sheets, tax documents, and sales records, to show the overall health of your business.
You should also prepare a detailed analysis of the costs and income you expect the new property to generate. Be sure to include the costs of building out the new facility, staffing, and insurance, as well as contingency plans in case you fall behind your goals.
- Choose the right source for your loan Working with a reputable mortgage broker or lender is essential to getting a the right commercial property loan. Look for lenders who have been in business for years, with proven successful businesses as references. Mortgage brokers can be harder to judge since they generally don't hold onto loans for long, but again, references are key.
The best lenders will help you with the first two steps on this list, as well. Look for a lender who can give you some advice on what to look for in a property, and who can guide you through the process of gathering information and applying for your commercial property loan.
One final note: getting a commercial property loan for a new business is very difficult. In most cases, new business owners should plan on renting for at least a couple of years.
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