5 Tips to Know Before Applying for a Commercial Property Loan

5 Tips to Know Before Applying for a Commercial Property Loan
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If you’re looking to lock down an investment, secure an office space, or launch a restaurant, you’re going to need a commercial property loan.

When it comes to commercial property loans, you’re looking for flexible, competitive deals that match your current circumstances and suit your future plans. You might be going into your business loan with bad credit, limited documentation, or maybe you are fully prepared and equipped for success. No matter your situation, walking into a bank and hoping for the best should never be your course of action.

If you’re prepared to secure a loan, your bank might lock you into a deal that’s better for them than it is for you. Alternatively, if you don’t meet their strict requirements, you can expect to walk out empty-handed.

That’s why it is essential to do your research and ask the right questions before committing to a commercial property loan.

The Purpose of Your Commercial Property Loan

Before you even talk to a lender, there are several factors that can affect the features of your loan. The reason you’re taking out your loan and the type of property you’re purchasing will both come into consideration.  For example, you may be buying or refinancing a property for investment purposes, as working capital, or to occupy and run your business. Investment is generally considered low-risk, while working capital is high risk and being an owner-occupier is somewhere in the middle.

The type of property is important to the lender because they want to be able to sell it easily if you can’t make your repayments. Lenders will prefer office spaces, warehouses, shopfronts, and factories over restaurants, hotels, or other more specialized properties.

Ask Yourself These 5 Questions Before Committing to a Commercial Property Loan

Now that you know a little bit more about what influences commercial loans, you can dig deeper by asking yourself a few questions. In general, these questions will help you to consider your options more closely rather than having to rely solely on the advice of your lender.

1. What Are the Different Types of Commercial Property Loan?

Your commercial loans can come in all shapes and sizes, with different features, terms, and loan types available. Just some of the commercial property loans that might be right for you include:

  • Full doc loans: These loans require full financial documentation and they are usually secured by an existing residential or commercial property. In return, these loans have a range of features and options to choose from.
  • Low doc loans: If you lack all the documentation for a standard full doc loan, you can apply for a low doc loan. These loans require less documentation and are usually suited to sole traders, investors, and other individuals without a regular income.
  • No doc loans: When it comes to commercial loans, no doc is a bit of a misnomer. These aren’t actually loans for people who can’t provide any documentation, but rather, they are loans for applicants who – for one reason or another – are non-conforming. Examples include having limited documentation or only having held your ABN for a short amount of time.
  • Bad credit loans: This is a type of non-conforming loan. Some lenders won’t even consider you if you have a bad credit history but there are still ways to secure your commercial loan.
  • Investment property loans: A type of commercial loan that has been compiled exclusively for investment purposes. These loans are generally considered lower risk.
  • Bridging loans: In commercial property terms, a bridging loan is a short-term financing option that you take out while you are selling your existing property.

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2. Will I Need a GSA?

 To secure your commercial property loan, you will need security, usually in the form of a residential property. This property acts as collateral for the lender, but the lender may also ask for a General Security Agreement. This agreement not only applies to your property but also your commercial assets. Banks will generally insist on a GSA, but it is possible to negotiate this depending on your financial situation.

3. Should I Consider a Private Property Loan?

The bank isn’t the only place you can get a commercial property loan. Private lenders, or non-bank lenders, are third parties through whom you can secure a loan. Private property loans are often approved faster, offer greater flexibility, and provide more options for non-conforming applicants. When applying for a commercial property loan, you should consider all avenues in order to get the best deal.

4. If I Do Go with a Bank Lender, Do I Need to Do All My Business Banking with Them?

While you should consider private lenders, bank lenders may be the best option if all your finances are in order. However, bank loans always come with caveats, such as having to do all your business banking with the loan provider. This means you either must get a loan with the bank your business currently works with or switch all of your business banking to this new provider.

For the bank, this is a way of reducing risk, and while it could work for you, it may also disrupt your business banking and work against your best interests. While it is often a strict requirement to bank with your business provider, there are ways around this, and depending on your circumstances, you may be able to avoid the switch.

5. Should I Speak to a Property Finance Broker?

Unlike the big banks and smaller lenders, an independent finance broker will have your best interests at heart. They can give you access to hundreds of different commercial property loans from a range of providers and help you select the right loan for your circumstances.

A property finance broker will explore a full range of bank and non-bank lending options and, most importantly, they can negotiate favorable terms for your loan. This includes avoiding GSAs and having the freedom to do your business baking separately to your loan provider.

There’s Nothing to Lose When You Talk to a Property Finance Broker

Expert property finance brokers could be the key to securing a competitive, flexible loan that sets you up for success. Best of all, a broker’s services are usually free because they take their money from the bank or lender – not from your pocket. To secure a commercial property loan that suits you, contact an experienced, professional, industry-leading broker for yourself.