The availability of funds for small commercial loans, those usually obtained to purchase small office complexes and clinics are making a comeback.  Now may be the time to make your move and ditch your landlord.  Rising commercial square foot rates, lower property values, and an easing of the belts of credit guidelines are creating opportunities. 

Typically, a down payment on your new office or clinic is going to cost you a 25 percent down payment, but careful planning can decrease that to 10 percent in some cases.  There are 5 main components that lenders are looking for when applying for a loan: net worth, liquidity, free cash flow, credit score and history, and ownership experience.  Understanding these five components, not necessarily strength in all five areas, is critical in ensuring you get the loan you want.

 As a general rule, lenders look for a borrowers net worth to be equal to or greater than the requested loan amount.  Providing supporting schedules to verify the value of assets can assist lenders in providing a quick decision for you.  Liquidity is often a borrower’s primary shortcoming. 

Typically you should try to show cash liquidity of at least 10 percent of the loan amount.  You should include all assets that can be liquidated or converted to cash in 3-5 business days.  Cash, stocks and bonds, IRA’s and other securities should all be presented.  The personal financial statement your lender asks you for usually includes a balance sheet and income statement, or statement of cash flow. 

Cash flow statements are rarely completed accurately.  Making sure you accurately calculate your free cash flow can be critical to your loan approval.  Be sure to list all sources of income available to you, W-2 earnings, salary, business investments, real estate investments, interest income , even partners or spouses income. 

The fourth component, credit score and history can actually be your greatest asset, even if you do not have the highest of credit scores.  Lenders look for things like recent late payments, bankruptcies and tax liens, as well as credit scores.  Low credit scores can quickly be boosted by paying down revolving balances to below 35 percent of the credit limits.  Ideally having only 3-5 unsecured credit cards open at one time will help to boost your scores as well, so getting rid of some of those old cards you haven’t used in a while or consolidating could give your score a boost.  Paying off small balances remaining on installment loans can help increase not only your credit score but your free cash flow as well. 

Last lenders want to see you have adequate ownership experience.  This includes being capable of making sound business decisions and managing money and personnel.  Experience and history in owning and operating previous residential and commercial real estate is helpful, as well as experience managing other people.  Thoroughly explain your ability to operate and manage both business and people. 

Does all this sound too challenging?  If you are relying on the loan officer at the corner bank you may be right.  Obtaining advice and having a professional, experienced, commercial loan broker walk you through all this will not only increase your odds of getting the loan you want, it will also make gathering and compiling all of the above information easier. 

A good mortgage broker will probably get you better terms and interest rates as well because they have access to many different wholesale lenders.  Knowing how to package your loan information in the most favorable light is critical to your loan decision.  Few if any borrowers possess strength in all five areas mentioned above.  Since not all lenders have the same underwriting guidelines, having a broker on your side who understands and has knowledge of various lenders guidelines and their niches is essential.

Nanci LeBrecht, senior loan officer at Patriot Home Funding of Altamonte Springs, FL, has over 30 years of both small commercial and residential lending experience.  Her clients include small business owners and homeowners seeking real estate funding.  She can be reached at LeBrecht@bellsouth.net or Nanci.LeBrecht@myphf.com.

Tags:

Bookmark:

Digg

Facebook

Technorati

Newsvine

Google

Related: