What are the most important details to know about a commercial real estate loan?
When it comes to commercial real estate loans, every bit of information is important. Terms such as an amortization schedule, prepayment penalty, interest rate, loan term balloon terms and others are things you should understand before you sign any documents for a commercial real estate loans.
When seeking a real estate funding it is necessary that you are knowledgeable of the lenders expectations so that you increase your chances of securing the ideal financing when you need it.
- Credit Scores
Although commercial real estate loans are offered with a lien on the commercial property lenders will still put you responsible for ensuring payment. A strong personal credit score is thus integral if you need the best financing with the best rates, but you must also build up your business credit score in order for lenders to have more trust in your business.
Collateral or loan security is usually a requirement by some commercial real estate financiers. It is termed a strong motivator for making your loan repayments in time. Traditional lenders like banks will repossess your asset to compensate for their loss if you are unable to complete your loan payment. Collateral can also include a business-owned equipment, home equity, and a deposit on a business bank account among others. Understand and be comfortable with the type of security that the lender will require form you before committing to the commercial real estate loan.
- Cash Flow
Cash flow is the amount of money getting into your business vis-a-vis the amount going out. Lenders not only want to know the amount of money you are making, they also want to know how much you put in your cash reserve and the amount you reinvest into your business. One of the requirements by most commercial real estate lenders is a documentation of your operation expenses for the last three months and other documents that show your cash flow.