Common Mistakes To Avoid When Taking Out a Commercial Real Estate Loan

Common Mistakes To Avoid When Taking Out a Commercial Real Estate Loan

Whether you’re looking to buy a building for your business or plan to get started as a commercial real estate landlord, you’re going to need money to finance the purchase. For most people, this means taking out a loan to fund the majority of the cost of the property. While real estate loans are the easiest way to buy a building, there are a few mistakes many first-time buyers make when applying. Here are a few of the most common mistakes you’ll need to avoid at all costs.

Not Shopping Around

Different lenders will look at your financial situation in different ways. This means that while one lender may offer you a small loan at a high interest rate, another may offer you more money at a much lower interest rate. The only way to find the right loan for your budget is to get quotes from several lenders. Compare the terms they offer you and choose the lender that gives you the highest loan amount at the lowest interest rate.

Not Having Money On-Hand

It’s rare for lenders to offer a loan for the full purchase price of the property. You need to show that you’re serious about the building and the loan itself. Most lenders will expect you to have at least some cash-on-hand to use toward the purchase of the building. If you don’t, you may not qualify for the loan in the first place. Try to have at least 20 percent of the building’s purchase price available in cash before you apply for a loan. The more money you have to invest in the building yourself, the more likely you are to get a great loan.

Not Having a Solid Business Plan

Lenders want to know that you’ll be able to repay the loan in full by the end of the loan term. You’ll need to create a solid business plan to show them just how easy it will be for you to make good on those payments. If you don’t already have one written, create a detailed business plan before you apply for a loan. At a minimum, you should include the following:

  • Explanation of how your company operates
  • What the competition is like in your industry
  • The services and products you provide
  • Your plan for the building
  • Your plan for the loan money

The more information you can provide, the better.

Familiarize yourself with these commercial real estate loan mistakes before you start applying. Once you do, you’ll be able to get the best loan for your needs.