5 Tips to Getting Your Best Commercial Loan
Deciding to obtain a commercial loan is just the beginning of the process.
If you plan to walk away with the best commercial loan option, then you need to be well equipped. Help break down the intricate process by following these five tips!
1. Know How the Loan Process Works
One of the first overwhelming factors in the search for the perfect commercial loan is the fact that many aren’t fully aware of what the loan process looks like. First, expect a lot of back-and-forth during the process and realize there is never a true understanding of when it will come to an end. Once you comprehend that, get a feel for the overall loan process:
1. Initial application is submitted
2. A loan officer determines if that application is a good fit
3. If all looks well, the borrower will receive a Letter of Intent, which includes the loan amount, a proposed interest rate, and terms of the loan
4. Borrower signs the loan term document
5. The lender requests a variety of documents in which they will then supply to the loan committee for final approval Despite the process seeming rather straightforward, in reality, it can become quite complicated and will take time. When you comprehend the process and learn to be patient, the entire experience will become less stressful.
2. Understand That There Are Different Loan Options
Before starting the commercial loan process, understand that there are a variety of different types and each has its own perks. Ask yourself what your goals are from this commercial loan. Is it for short-term to finance receivables and inventory? Or do you need something more longterm, like equipment purchasing or improvements?
As with any financial objective, once the goals are determined the loan process becomes more efficient and less chaotic for the borrower. In order to learn about the different types of commercial loans, it’s best to reach out to a local loan officer to explain them rather than getting lost in your own online search.
3. Be Realistic About Your Risk Assessment
When calculating your loan risk assessment, the most crucial aspect is to accurately reflect the numbers in your projections. The first step is to be precise about your income and expenses. Chances are if you’re simply giving a rough estimate of your income and expenses, then the lender will most likely disagree with the numbers you came up with.
Next, become familiar with your debt service coverage ratio (DSCR). To do so, simply take the net operating income and divide it by your annual loan payments. This will help both you and the lender to determine a more realistic overview of your risk assessment, and it will also show the lender that you truly understand what they are looking for.
4. Develop a Well-Prepared Plan
Once you understand the loan process, determined which commercial loan type is best for you, and accurately calculated your risk assessment, it’s time to build a plan to present to the lender. The more preparation you put into your plan, the better your chances are of getting the commercial loan you need. Be sure to also obtain any documents the lender may need. The more thoughtful you are about the process, the better prepared you can become which ultimately helps smooth and speed the entire loan process.
5. Get a Feel for the Lender
Perhaps one of the most important aspects of the entire commercial loan process is finding the right lender. Remind yourself that although you are the borrower, you have just as much of a right (if not more) to ensure that the relationship between you and the lender is a trustworthy one. After all, they are the ones who will be walking you through the entirety of the loan process and will be learning all about your financial situation.
With that said, do your homework and find the lender that won’t just get you the loan you need, but will be your partner before, during, and after the loan process.