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10 Tips for getting a Commercial Loan

Beginners look at commercial loans as a means of realising a dream. They long to own their own restaurant, pub or bed-and-breakfast, and look to their friendly local bank manager for help. Cue frustration and disappointment. These days, commercial loans are decided by back-room underwriters, who use cold calculation to decide your credit worthiness. To the seasoned pro, it’s just another day at the office; a handy way of adding to their portfolio. To get the best deal, you need to prepare in advance. Here are a few tips to help you on your way to securing a commercial loan:

  1. Have your business plan, forecasts and projections, financial records and statements, history of the property’s income, and the appraisal when you approach lenders. Make sure these are accurate and up to date. This lets the bank know that you mean business. If you make them think about your application and make their own assumptions, they are more likely to decline the application.
  1. Put your own money down. You’ll need at least a deposit and settlement costs. Lenders want to share the risk, not own it entirely. They will usually not finance more than 75% of the appraised value of the property. Personal guaranties of the principal owners may be necessary for a commercial loan.
  1. Get your own appraisal of the property. This will provide you with an unbiased estimate of what the property is really worth. You’ll then know whether it’s worth the financial risk.
  1. Apply for your commercial loan as soon as you can. Commercial lenders exaggerate their speed. They’ll quote you forty-five days when it’s more likely to be three months!
  1. Never rely on just one commercial lender. Commercial lending is very subjective.
  1. Lenders near the property generally offer better terms. With those farther away, it’s a case of ‘out of sight, out of mind’.
  1. Have a lawyer who specialises in property investment go over everything. You need someone who knows the business and who can be an advocate on your behalf.
  1. Be certain that you can afford to keep your business going and still meet your payments. Properties must show sufficient debt-repayment ability. If the property is to be occupied by a sole tenant, the lender may want to appraise that tenant’s finances.
  1. Check with your local small business administration for any potential grants or low interest commercial loans you might be able to wangle.
  1. Negotiate. You do not have to take the first offer you get. Getting a commercial loan is like buying any other goods. People are sometimes too in awe of banks to haggle. There’s no need to be afraid; they can only say no!


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