A Guide to Successful Commercial Property Loan Application

Whether it is the expansion of the existing business or the start of a new business, a commercial property loan helps businesses acquire real estate such as land to set up manufacturing plant, office space, space for staff quarters etc. Much like a home mortgage, the property purchased is held as collateral against the loan.

However there is a major difference between commercial mortgages and home mortgages. While home mortgages are relatively easy to obtain, commercial mortgage approval requires a thorough scrutiny of the papers, credit report and financial viability of the company and of the location, condition, and viability of the property you're interested in buying.

A solid business plan and careful evaluation of the property are essential for getting approval for a commercial property loan. Here is how you can improve your chances of getting approval for your commercial property loan application.

Choose the right property

The characteristics of the property are the first crucial aspects any lender would scrutinise. So choose a property which is legally clean, situated in a good location, has all the required environmental approvals and is in good condition.

Take the help of your real estate agent to evaluate foot and vehicle traffic, zoning regulations, and previous uses of the property.

Prepare for the application well

There will be minute scrutiny of all the papers you have submitted along with the application. Hence prepare detailed financial reports, including balance sheets, tax documents, and sales records, to show the overall health of your business.

Following is a discussion of some basic aspects of what are considered as well-prepared documents:

• Keep your income tax returns regular and complete. You would need to furnish at least the last two years’ tax returns. So they should be complete in all respects.

• If you have applied for an extension, make sure that you have the extension ready and it has not expired.

• In case of an extension, complete the year end financial statements in all respects.

• You would need to provide your bank statements for the last three months.

• In case you are looking at refinancing your commercial property loan, you would need to furnish your pay off statements, survey, title policy, and appraisal to the lender, so keep them ready.

• Prepare and produce the costs of building the new facility, staffing, and insurance, as well as contingency plans in case you fall behind your goals.

• Get your latest personal credit report and in case of any negativity, clear it or have a valid explanation incorporated. Do have the documentary proof to back the explanation ready.
Choose the right lender

Since the terms and conditions including the interest rate will differ from lender to lender, it is important to approach a lender who will not only fulfil your requirements, but will also offer attractive interest rates and easy terms and conditions.

A good pointer is the experience as a lender and proven successful businesses as references. Brokers can be of great help as they are networked with most of the lenders providing commercial mortgages in the UK.

Also, a good and experienced lender usually helps the borrower to hunt for a good property and prepare the necessary papers. Plus, the lender should be willing to guide you through the process of gathering information and applying for your commercial property loan.