Finding the right commercial real estate loan is an even more complicated process than finding the right residential mortgage. Avoid prospective lenders who promise but never deliver and do your research to obtain the necessary information on various commercial loans. Here, successful commercial real estate investor Mike Eisenga shares five tips on getting the financing you need.
1. Know Your Options
There are several types of commercial real estate loans. Your first challenge will be to understand each loan type’s pros and cons and select the best fit for your needs. Each loan option has unique rates, terms, eligibility requirements, and application processes. Here are some popular options:
- Traditional bank loan – The most popular type of commercial property financing, the traditional bank loan usually represents the largest amount you can borrow, the lowest interest rate, and the most extended loan term. This is a good option for borrowers with existing banking relationships.
- SBA loans – Small Business Administration loans may offer the most desirable terms and rates and be easier to qualify for. This is often an option for business owners who were unable to secure a traditional bank loan.
- Short-term loan – Sometimes called a bridge loan, these financial instruments can be used to leverage an opportunity while more conventional funding is secured quickly.
2. Vet Your Lender
While it may feel like the lender has the upper hand in your relationship, always take the time to vet a potential lender. Talk to previous clients to learn about their experience with the lender. Probe about promises kept or their previous customer’s expectations they did not meet.
You are likely to be in a close relationship with this lender for the next ten years, so make sure the lender is someone you want to work with for the long term.
3. Read the Fine Print
Ask lots of questions and read the fine print. In particular, watch for hidden fees, balloon payments, and the all-important processing time. In business, time is money. If you end up waiting months for your loan to close, you are losing business. Even a slightly higher interest rate or less favorable terms and conditions may look better if you can get the money when you need it.
4. Build a Relationship with Your Lender
You’ve courted the lender and secured the loan. Now is the time to build a stable relationship with them. If your business is a success, you may need additional financing to expand your business. If your business struggles for a time, you may need to leverage the relationship you’ve built to extend your terms.
5. Have Your Plan Ready to Present
Take the time, and hire outside help if you need to, but have your business plan polished and ready to go before finding a loan or a lender. Know the value of your assets and the property you want to build or buy.
A well-documented plan with all the necessary numbers will place you in a favorable light and expedite the process. The leg work will need to be done at some point anyway, so do it before the search for a lender begins in earnest.
About Mike Eisenga
Mike Eisenga is a successful commercial real estate investor with a banking and finance background and is the former mayor of the City of Columbus. As a President of both American Lending Solutions, a mortgage lending company (he founded and operated from 2000 to 2018), and First American Properties, he has a track record of creating and running successful businesses. Mr. Eisenga is also devoted to property development and construction, primarily serving smaller local communities. Especially in the senior housing sector.