Beginners see business loans as a way to make their dreams come true. They want to own their own restaurant, pub, or bed-and-breakfast and ask their friendly local bank manager for help. Cue frustration and disappointment. Underwriters in back rooms make decisions about loans these days. They use cold math to decide if you are creditworthy. For a professional with a lot of experience, it's just another day at the office and a good way to add to their portfolio. You need to plan ahead if you want to get the best deal. Here are some suggestions to help you get started:
Have your business plan, forecasts and projections, financial records and statements, a history of the property's income, and an appraisal ready when you talk to lenders. Make sure that these are correct and current. This shows the bank that you are serious about doing business. If your loan request makes them think, they are more likely to say no.
Put up your own cash. You'll need a down payment and closing costs at the very least. Lenders don't want to take on all of the risk; they want to share it. Most of the time, they won't lend more than 75% of the property's appraised value. There may be a need for personal guarantees from the main owners.
Get your own estimate of how much the house is worth. This will give you a fair idea of how much the property is actually worth. Then you'll know if it's worth the risk to your money.
Fill out the loan application as soon as you can. Commercial lenders lie about how fast they can move. They'll tell you it will take 45 days, but it's more likely to take 3 months.
Don't depend on just one business lender. Lending money for business is very subjective. At least four of them should know about your deal.
Commercial lenders have to order their own property evaluations. By law, the bank can't take one that you or someone else orders.
Most business lenders now need toxicology reports to find out if the site is contaminated. If a lender takes back a property that is contaminated, they have to pay to clean it up.
Most of the time, lenders close to the property offer better terms. "Out of sight, out of mind" is true for those who are farther away.
Does your business make a lot of money? You can get a better deal if you promise to put it in the lender's account.
