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Self-Assessment: Evaluating your commercial lending needs using five questions

Business expansion often relies on commercial lending and commercial loans but is it necessary? Find out if your business is prepared.

I am Bill, owner of a Pizza restaurant located within the vicinity or a large-scale university with many potential customers. My key competitor in the region decided to forego his share of the market and closed doors. With no competition and a larger market, I finally felt I can dominate the region without engaging in price wars, meaning greater profits.

Since I would need to cater to a larger population, my first impression was to buy out the competitors place, which still had the equipment and considered commercial real estate loans as a viable solution.

My brother-in-law, who also happens to be a finance professional, advised me to carry out a self-assessment using 5 questions before reaching out to commercial lending organizations. He proclaimed that any lender in a professional category would put me to test with these questions so I had to plan ahead and be prepared if I needed to qualify for commercial loans.

The questions, which, I need to answer before seeking commercial lending assistance, are:

What is the amount of finance required?

The worst preventable outcome is acquiring a commercial loan unable to fulfill its objective. While it seems easy to determine the amount of loan required, working up a well accounted commercial lending may seem quite tedious. I had to determine if the buy-cost included the equipment or if I need to pay extra for that.

How will it be used?

Its critical to know what the funds acquired through commercial lending (in my case commercial real estate loan) would be used against. It is pointless to acquire a loan if you are unsure how to spend it. In my case, equipment was included in the buy-out amount.

When is it required and if you require all of it?

Not all deals require an upfront full payment, some deals have room to make an initial investment and other costs can be taken care of later. Do I need commercial real estate loans or do I need commercial loans as well i.e. to buy-out the place and manage other costs on the go is a question that should be answered.

What is my personal credit History?

Commercial lending organizations take keen interest in your financial management skills as well as your personal and commercial lending history. If your credit history is positive, you might be off the hook.

What would be my Return on Investment (ROI):

Commercial lending business need to know their money is invested in a reliable business in order to receive a payback on time. It needs more than a convincing attitude to bag commercial loans. Well, needless to mention, everybody loves pizza. It was a sure winner; an award-winning pizza with a large population to feed. While my initial speculations suspected a larger crowd to feed, I realized that the competitor quit due to lack of profits. Hence, I have to feed a relatively large crowd but not big enough that it could not be managed at my current place. Hence, I went for smaller commercials loans to enhance my current place.

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.