The process of securing a commercial real estate loan is quite complex. There’s a lot that can happen, and a lot that can go wrong. Fortunately, there are things that you can do to help ensure that your financing process is successful.
Submit Your Deal to Multiple Lenders
Loan approvals are subjective, depending upon the decision of another person. It’s recommended that you submit your deal to at least four commercial lending institutions to help increase your chances of getting approved.
Choose Lenders Near the Property
When possible, choose a local lender. You’re much more likely to secure a better deal with a local lending company than one further away from the property.
Don’t Order the Appraisal Yourself
Some brokers may try to tell you that you have to order the appraisal of the property. A commercial real estate lending company needs to order it. A bank cannot accept an appraisal that you have ordered yourself.
A Toxic Report May be Required
Toxic reports are a requirement of many leading companies. The report is an investigation of the property for any signs of environmental contamination. If the lender forecloses on contaminated property, it is held responsible for the cleanup. The level 1 toxic report absolves them of that responsibility.
Don’t Pay for Any Reports Until You Receive a Term Sheet
A commercial real estate loan can be expensive, and unfortunately, there’s no guarantee that a deal will be approved. Before you agree to pay for any third-party reports, wait for a term sheet.
A term sheet (or conditional commitment letter) is a written document showing a lender’s interest. It’s not a commitment letter, nor is it legally binding. It is, however, a good sign that the lender will approve your deal so long as your appraisal is good and the toxic report is clear.
Consider a Deposit Relationship
If you aren’t getting any interest on your commercial deal, and you have a lot of cash in your business account, you may be able to grab some attention by offering a deposit relationship. If your bank turns you down for a loan, you may be able to entice another bank to approve you by promising to move all of your business there.
Be Prepared to Wait
Some lenders promise fast turnaround times. The process can be lengthy, taking up to three months or more. Don’t wait to submit your deal. Get it in as soon as possible to avoid stressful (and potentially devastating) time crunches.
Getting a loan for a commercial real estate property can be stressful. Making sure that you do your homework and have everything in order can help to make the process easier.