Securing commercial real estate financing can be a difficult task if you're not familiar with the field. First, let's distinguish between residential and commercial. Residential properties are solely for housing people. The location can have up to four units. Five or more units, and just about anything not intended for habitation, qualifies as commercial.
With that clear, let's discuss the actual financing. Acquiring money, and how much you are allowed to borrow, is affected by a number of factors.
When analyzing an investment plan, lenders consider the following:
* The borrower's credit rating
* The net income of the venture
* The laws and demographics of the area
* The kind and number of tenants.
These are not the only things lenders consider, but these can give you an idea of how much planning and research you need to do. We'll address these as the most immediate concerns that you can also investigate on your own.
Commercials all over television talk about a person's credit rating. This very important number controls your financing life and future. Basically, the higher the rating, the more likely lenders are to give you a larger loan with a decent interest rate. For them, a good rating indicates not only your ability to pay, but your level of responsibility to your debtors. If you have a median rating, you may have to begin with a smaller venture so that you can get a reasonable loan and interest rate.
In addition to the credit rating, but far more important a consideration in commercial property, is the net income of the venture. Financiers want to see that the venture will allow you to pay the mortgage due each month. A proposal that does not clearly indicate profits enough to cover expenses and loan payments is not likely to receive funds. It is important that you investigate this before proposing a venture to a lender. Make sure you account for all of the expenses (repairs, maintenance, etc.) before presenting your net income on the property.
Consider the laws and demographics of the area because the finance agency will. If laws are going to restrict the productivity of your venture, lenders may be reluctant to provide a loan. The same is true of demographics and the economic climate of the location. If the population is low or isn't likely to patronize your business, again, that can effect whether or not you get funding. Also, the economic activity of the area influences financial decisions. If there is a boom, your chances increase. Let's say the area is a money drain, or in an escalating slump. It will be harder to justify commercial real estate financing in those kinds of conditions.
Also look at your tenants. For example, if you're proposing to open a health food store in a strip property that has several fast food tenants, then your business's chances of success are much lower. If, for instance, you open the same kind of store in a strip with a gym, yoga studio and health spa as tenants, the likelihood of getting frequent customers is increased. Lending institutions take these sorts of things into consideration because they influence the profitability of your venture.
These are not the only considerations, but they are easy to check into and can help you decide if a particular venture is worth your time and the work involved in securing commercial real estate financing. Make sure you do your homework first, and securing funds for your venture will be an easier process.
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