How to Get the Best Rates for Commercial Real Estate Financing
Financing is essential for securing the best commercial real estate. Few business owners and investors can purchase commercial property outright. Even if you have the financing available, it may be more financial advisable to keep your working capital free. Find out how to get the best rates and terms for your commercial property today.
Cash Flow of Commercial Property
Similar to a conventional mortgage, much of a commercial mortgage is based on the value of the property. However, a commercial property has more value than just the materials, design and location. A commercial mortgage lender looks at the historic income and cash flow of the property. Whether you’re purchasing property for an owner-occupied business, a storefront for lease or multifamily rental units, your lender needs to know how likely the location is to make a profit.
A competitive location is critical to becoming approved for a commercial mortgage with low interest rates. There are many factors that affect the value of your location. Look for property that’s in a desirable neighborhood, near a metropolitan area or other factors that will ensure steady rental interest and growing value.
Commercial Property Condition
Just like any mortgage, your commercial real estate financing is backed by your property. Your lender will send an appraiser to determine the physical condition of the property. Does it need immediate repairs, additional maintenance or extensive renovations? All of these factors can decrease the value of the commercial property, while updated fixtures, flooring and other materials can improve the value of it.
Your Credit Score and Financial History
You may struggle to receive a loan for even the best property if you don’t have a good credit score and strong financial history. If the real estate itself is reliable, your lender will look at your personal and business financial history. You don’t need a perfect credit score, but anything you can do to improve your credit score can improve your financing rates.
A business with less than two years of financial history or with a history of bankruptcy, foreclosure and other risk factors will struggle to receive a competitive loan. Ideally, you should operate your business for at least three years before applying for a loan. Otherwise, you may have to work with a higher interest rate due to the additional risk of lending.
Look for commercial real estate that matches these factors and work to build your personal credit score and business financial history today. With the right property and application, you can enjoy excellent interest rates, credit limit and loan term for your commercial property.