7 Steps to Mastering the CRE Financing Approval Process
3 min read.
Seeking a commercial real estate loan can be a significant undertaking, with the success of your purchase hinging on the bank's approval. To enhance your prospects, it is essential to approach the process strategically. By following these seven critical steps, the likelihood of securing the financing you need can be higher.
Demonstrate Profitability: Ensure that your company's finances are in order, which is the most crucial requirement for financing approval. Banks prefer businesses with a proven track record of profits and sustained growth.
Assess Your Space Needs: Thoroughly evaluate your real estate requirements, avoiding hastily conceived projects. Show evidence of solid planning, including budgeting, desired locations, square footage needs, and provisions for future expansion. When budgeting for the property, you should consider all associated costs, such as due diligence, renovations, legal fees, and operational expenses.
Have a Specific Property in Mind: To provide an accurate assessment of financing possibilities, banks require information about the property type, condition, age, and resale potential. Having a specific property in mind shows your commitment and seriousness as a buyer.
Prepare Necessary Documents: Gather all required documentation, including up-to-date financial statements, a comprehensive business plan, and details about the property you intend to acquire. Demonstrating an experienced management team can also enhance your credibility.
Meet with the Bank Before Bidding: It is advisable to meet with your banker before making a purchase offer, especially if this is your first venture into commercial real estate. The bank can inform you about its financing conditions, including necessary assessments and due diligence experts.
Allow Adequate Time: Ensure your purchase offer provides sufficient time for the bank to review the transaction thoroughly. Allowing for a realistic due diligence period prevents potential conflicts and delays.
Investigate Loan Terms: While interest rates are essential, pay equal attention to loan terms. Factors such as loan-to-value ratio, amortization period, and repayment flexibility can significantly impact your bottom line. Carefully explore your bank's financing options to identify opportunities that align with your business needs.
By following these steps and approaching the financing process strategically, you can present yourself as a reliable and well-prepared applicant, increasing your chances of obtaining the commercial real estate financing you require. Remember that proper planning and a strong financial track record are instrumental in gaining the bank's confidence in your loan application.
References
Frank, J. (2022, April 25). Council post: Five ways to improve your chances of getting a commercial real estate loan. Forbes. https://www.forbes.com/sites/forbesbusinesscouncil/2022/04/22/five-ways-to-improve-your-chances-of-getting-a-commercial-real-estate-loan/?sh=6d655f2e3045
How to get approved for commercial real estate financing. BDC.ca. (2023, May 9). https://www.bdc.ca/en/articles-tools/money-finance/buy-lease-commercial-real-estate/how-get-approved-for-commercial-real-estate-financing
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