Applying for a loan for the purchase of a commercial building can be a major challenge. Most of the time, it is the bank that will decide last whether or not you can move forward. However, you could significantly increase your chances of obtaining a loan by following the key steps below.
Here are the seven crucial steps that will help you get a commercial real estate loan.
1. Demonstrate that your business is profitable
First, make sure that your company’s finances are in order. An unprofitable company is unlikely to obtain financing. Banks like to see a solid history of profitability.
2. Assess your space needs
Carefully study your commercial real estate financing needs. Bankers do not appreciate requests for financing for poorly designed projects or launched on a whim. They want to have proof that you have planned your project well.
Determine your budget, the location where you want to settle and the area needed. See if it is better to buy or rent and how you can support the expected growth of your business.
When preparing your budget, it is important to consider not only the cost of the purchase (or basic rent, in the case of a lease), but also the additional costs, which contractors tend to neglect or underestimate – including due diligence costs, renovation costs, losses due to the cessation of production during the transition, legal fees and recurring operating expenses of the building.
3. Already have a specific building in mind
A bank decides on the amount it is willing to grant you based on your finances, but also the type of building you covet, its condition, age and resale potential. If you do not present her with a specific building, it will be difficult for her to determine how much she can grant you.
In addition, the banker could form a bad opinion of you if he feels that you are not a serious buyer and that you waste his time.
If you do not have a specific building in mind, a bank may nevertheless grant you a preliminary meeting to give you an idea of the financing it would be willing to grant you. However, it is generally recommended to organize such a meeting with a bank only if you have a good relationship with it.
4. Prepare your documents
As soon as you have a specific building in mind, prepare the documents that you will have to give to the bank. This will include submitting up-to-date financial statements, a rigorous business plan and detailed information on the building you are interested in. Banks also like to see that they are dealing with an experienced management team.
5. Meet your banker before making an offer to buy
It is recommended to meet with your banker before making an offer to buy the building you want to acquire, especially if this is the first time you have taken such an approach.
Your bank will explain to you under what conditions it will provide you with financing, for example if you submit an environmental assessment and an inspection of the condition of the building, an assessment of the value of the property and a search for securities. It may be useful to call on recognized experts for this type of due diligence. Each bank has its own list of experts. If you turn to someone else, your bank may request a second notice, which could delay the transaction.
6. Leave enough time
Your offer to purchase should leave enough time for the bank to review the transaction. It is common to see offers with a maturity of just 30 days, when banks often need six weeks, and sometimes even more, when due diligence reveals problems.
7. Take into account the conditions of the loan, not just the interest rate
When negotiating with banks, do not only take into account interest rates. Also, evaluate the terms of the loan. These could play an as important role in your profitability as interest rates. Where Does Money Go After Leaving the Bank?
Do not neglect either, the flexibility with which your bank could offer you repayment leave for your loan. For example, you could ask him to grant you a capital repayment leave for 12 or 24 months following the transaction to absorb the costs of the move and manage disruptions. If you ever find yourself facing liquidity problems, flexible conditions will allow you to postpone your repayments until you have restarted your business.