Commercial Business Loan
Red Tape is…
A Lender’s Inspection
The common commercial business loan is well known for being wrapped with red tape.
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| Get Approved With or Without the Red Tape! |
But why?
Well, what do you do before purchasing something?
You examine it thoroughly making certain it’s in your best interests to buy, right?
Is it reasonable to expect anything less from others, including lenders?
Absolutely not. In fact, commercial business loans got their reputation for this very reason.
Let me explain as I answer…
Your Questions
Why all the Red Tape for a commercial business loan?
What documents will I have to provide?
What do they all mean? What is the lender really looking for?
How can I make sure my documents make me look good?
Real Answers
Why all the Red Tape for commercial business loans?
You see, before lenders extend credit, they first have to “buy” into you. They must decide that it’s in their best interests to lend to you. If they don’t, you will be turned down.
So it’s important to “sell” yourself. You know, just like you sell yourself to your customers. The difference though is how lenders evaluate you. Unlike your customers, they’re not really concerned with the quality of your product or service.
Instead, they’ll be sold with a strong credit and financial picture. Hesitation will be out of the question if your credit, income, experience and stability are strong.
The only way they can assess you with precision and accuracy (both very important to lenders) is by means of your financial documents.
What documents will I have to provide?
The documentation requested for most commercial business loans will be similar.
Unless…
You apply for a stated income or a hard money loan. A stated commercial business loan can get you approved without the red tape. More on this if you click here.
They will request things like…
- Personal financial statements
- Business financial statements
- Subject property financial statements
- Personal credit report
- Business credit report
- Rent rolls
- Leases
- Corporation documents
- Personal tax returns
- Business tax returns
- Bank statements
- Pay stubs
- Business plan(s)
- And more…
But what do they all mean? What is the lender really looking for?
Seeing your documents the way a lender does will serve you well.
Each document is studied with a view to determining your
- Creditworthiness
- Income
- Experience and
- Stability
The lender is trying to determine the likelihood of default? “How risky is this borrower?” they ask themselves?
Let’s see how long he’s/she's been in business (corporation documents).
Ideally, you would have at least 3 good years under your belt. But it’s not a requirement for most commercial loans.
Does he/she have a plan for his/her business or is he/she planning to fail like most business owners (business plan)?
Please put some work into your business plan. Lenders will inspect it with a fine tooth comb.
How long has he been able to maintain a positive cash flow in this business (tax returns)?
To qualify, you must show positive income. If your tax returns show negative cash flow, you won’t qualify for a commercial business loan at a bank. Instead, apply for a stated income loan with a commercial loan broker that you trust.
Has he/she made any money in this business that he/she claims to be an expert in (business financial statements)?
They see the business financials the same way they see the tax returns. Better have positive income in the black or else! Year-to-date (interim) financials get more weight because they’re representative of how the business is doing right now.
How much can we lend out on this commercial property (profit and loss statements).
It’s determined based on a calculation called the debt service coverage ratio. They’ll get the numbers for the calculation from the Profit and Loss Statement of the commercial property itself.
Can he/she afford to pay us back based on the present income and/or revenues being generated (pay stubs, rent roll, financial statements)?
Should I say it? Yep. Must show positive income. Always in the black. Otherwise seek a commercial loan broker for a stated income loan.
Has he/she been able to secure tenants (leases)?
An income property without good income is not good collateral for a lender. Your broker may know a hard money lender with that kind of appetite though.
General rule of thumb here is to have the property at least 75-80% occupied. The more, the merrier.
Can he afford the down payment (bank statements)?
Down payments of 20% to 30% are the norm for commercial real estate. Some SBA programs do allow for only 10% down.
Has he/she made good on other loans he has borrowed in the past (personal and/or business credit reports)?
In commercial, lenders are just more strict. While residential lenders may be satisfied with a credit score of 640 or better, commercial lenders often start at 660, 680 or better before they’ll even look at the deal!
Yes, all of these documents paint your financial picture.
What do your documents say about you?
Do they ring with credibility and creditworthiness?
Are they peppered with stability and experience?
Take a good honest look at your financial statements. Is your bottom line in the red or black?
Do you have a business plan?
Does your financial picture scream “Mayday Mayday – High Risk!!!”
Or does it feel confident and secure?
How can I make sure my documents make me look good?
Even if you’re not looking so good right now be encouraged. Your business can be washed, dried and pressed.
With a few business do’s and don’ts, we can have you off and running within a short amount of time.
You may have to change and build some things like your
- Personal Credit
- Business Credit
- Business Plan
- Financial Education
- Commercial Property Education
- Business Development Action Steps and the like
You may even need to use a commercial loan broker instead of your local bank.
But it certainly can be done. In fact, that’s why we’re here. To help you do just that.
Help us to help you.
Tell us what you want to know at the Business Loan Express Contact Us Page.
We’ll keep making every effort to guide you to commercial business loans.
Still need help understanding your financial picture? Have no fear. This website will keep showing you how to read them with a lender’s eye.
- Return From: Commercial Business Loan Red Tape Unraveled (Top)
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