Commercial lending can be tricky if you are first starting out—whether or not you are a borrower or investor. This is why it is so important to understand the basic of commercial lending before you start looking for a lender or filling out the necessary paperwork.
There are a few things to remember when going over the commercial lending basics. For starters, the lender you choose matters, of course, but the real focus when it comes to this particular kind of lending is you. For instance, your business needs to be a good position to consider lending/borrowing for commercial reasons. This means you need to have good business character. An example of “good business character” is proof of previously paid debts or other loans. When you are able to prove this kind of proof (business credit reports as well as personal) this demonstrates that you are a trustworthy borrower, which means you are that much closer to getting approved for your commercial loan.
Another example of good business character is readily having all the necessary documentation in order. This means you need to the following items: personal financial statement, resume of owners, bank statements, business plan, and current information on monies borrowed. Ultimately, having these documents handy will make the lending process go much quicker and will show that you are serious about your future endeavor.
In addition, to good business character, you must possess the capacity to repay your loan. In other words, you need to have the cash flow or at least the access to the necessary cash flow for repayment. In order to figure out if you have the cash flow, it helps to look at the last three years of your business and personal financials as well as the last three years of your business tax returns. You will also want to assess what kind of collateral you are working with (though it is important to note that your collateral is not the same thing as cash flow).
Yet, another thing to consider when braving the lending world for commercial ventures is capital. Capital, not to be confused with cash flow, is, in essence, the ability to sustain a turbulent economy. It is important to establish for yourself and your future lender that you have capital whether it is the owner’s capital, the company’s earnings or some other source such as from an investor. A final note regarding capital, you may also be able to use grants or other government funds as a means of having the necessary capital.
Lastly, when considering commercial financing, do yourself a favor and take into account the current state of economic conditions. This means ensuring that no outside factors can impact your approve or your future ability for repayment. Ultimately, if you are not sure what the current state of economic conditions is or even where to begin looking, that is perfectly okay. There are dozens of reputable commercial lenders in your area that can help you figure out if now is the best time to move forward with your venture.
Dennis Dahlberg Broker/RI/CEO/MLO
Level 4 Funding LLC Private Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave |Austin | Texas | 78701
About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.