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10 Tips on Financing Commercial Real Estate
If you are hoping to purchase commercial real estate property, then you are most likely going to need financing in order to do this. That is unless you were born fabulously and independently wealthy. There are certain things that lending institutions expect from those they are getting ready to summarily hand large sums of money to. Hopefully, the following tips will help insure that you get the best possible financing for your commercial real estate investment.
1) Make sure you have all the documents you need and that they are accurate and up to date. You need to have a solid business plan in place with facts, figures, estimates, and forecasts. Lenders are making an investment and taking a huge risk when dealing with commercial real estate. If you donít have a business plan that indicates that you have put a great amount of time, effort, energy, and thought into your business, they are going to be less than enthusiastic about the prospect of taking that risk.
2) Have money of your own to invest in the property. For most commercial real estate investments you will need a down payment, closing costs, earnest money, and points that may be required. Banks want to share the risk not absorb it. By taking some of the risk upon yourself, you are actually lessening their risks while increasing their confidence in your ability to make good on your debt to them.
3) Have paperwork that shows the solidity of this property as an investment. You need to have your business plan, financial records, forecasts and projections, history of income on the property, and the appraisal of the property when you approach lending institutions. This lets the bank know that you take this venture seriously and that you are organized.
4) Come into the deal with a current appraisal of the property. This can make all the difference in the world. Even if the bank requires you to have another appraisal, it is a good idea to have your own appraisal of the property before you even make an offer on the property. An appraisal will provide you with and unbiased estimate of what the property is truly worth and it will help you determine what kind of risk you are really taking before youíve put money on the table.
5) You will need financial statements for either yourself or your business. This is a no brainer, but you would be surprised by how many are really shocked when they are asked for this information. Banks are lending you a large sum of money they want to be assured that you are fiscally responsible and somewhat solvent.
6) Have an attorney who specializes in real estate investments go over everything with a fine-toothed comb. You need someone who knows the business and will be an aggressive advocate on your behalf.
7) Be absolutely certain that you can afford to keep your business operating and still make the payments on the business. If you canít do this, or you arenít certain of your ability to do so, then either now is not the best time for you, or this is not the right investment for you.
8) Check with your local small business administration and see what services they have available to first time business investors and/or small business owners. They have a wealth of resources available it would be a shame to miss out on a potential grant or low interest loan simply because you neglected to check with them from the start.
9) Negotiate. You do not have to take the first offer you get. Be an aggressive advocate for yourself and your business. Learn this skill early and it will serve you well in your business.
10) Check out several lenders and go with the one that offers you the best deal. Remember this is a hefty investment and an unfavorable loan could increase the burden greatly.
This is your investment in your future; protect it aggressively. These tips should help you get the financing that is so vitally necessary when purchasing commercial real estate.
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