So, you own a small business and you need a business loan to help your company reach its goals. Where should you go?
There are many good reasons NOT to go to a traditional bank for a business loan or a commercial real estate loan. Here are some of the most important ones. Many small business owners will be able to use most of these points right away.
"THE BANK TURNED ME DOWN"
Of course, the main reason most small businesses look for other ways to get commercial real estate loans is because banks have turned them down. Small businesses often have to find other ways to get money because banks won't give it to them. This isn't even on the list below, because there are many good reasons to choose non-bank funding, EVEN IF YOU CAN GET APPROVAL FROM A BANK.
REASON 1: The least amount you can borrow from a bank is too high.
Most of the time, banks won't let you borrow less than $250,000 for a commercial real estate loan. So if you only need $100,000, you will be pushed to borrow more than you need. Or, you can't get a loan from a bank if your property can't support a $250,000 loan.
The solution is to find a different source of funding with a lower minimum amount. Some commercial financing services will give you money for as little as $100,000, and they often have much better terms and service than traditional banks.
REASON 2: Many traditional banks will charge you a "commitment fee" up front just to look at your application and process it.
Banks usually think that they are doing you a favour by processing your application, so they will often make YOU pay for their attempts to get your business.
The solution is to find other established and trustworthy lenders who are eager to give you better service without charging you a fee for processing your application.
The amount of cash you can get from a commercial real estate loan is usually very limited by traditional banks.
Most banks have very strict rules about how the money from a commercial real estate loan can be used. Most banks won't give you this kind of loan if you need money for your business or want to use the money from a commercial mortgage as a down payment on another property.
Look for a lender who won't put limits on what you can do with the money you get from a commercial real estate loan. Some services (see links below) can give you commercial loans that give you up to $1 million in cash that you can use however you want.
Before giving a commercial real estate loan, most traditional banks want to see a detailed business plan.
Many small businesses have business plans, but most of the time they aren't detailed enough for banks to be happy with them. Because of this, getting a commercial real estate loan from a bank can take a long time and cost a lot of money. Most of the time, it costs thousands of dollars to make a business plan that banks will accept.
Find a commercial loan lender who doesn't need a business plan as part of the underwriting process.
REASON 5: If you want a commercial real estate loan from a traditional bank, you may need to show your tax returns.
Many banks won't give you a commercial real estate loan if you can't or won't show them the tax returns for your business. Even the banks that don't ask for tax returns will sometimes ask borrowers to sign IRS Form 4506. This form gives the lender permission to get tax returns directly from the IRS.
When looking for other ways to get money, make sure that they don't need either of these things (tax returns or access to your IRS records).
REASON 6: Most banks will need personal property to be backed by more than one asset.
Even if your business property is enough security for a commercial real estate loan, many banks will still ask you to put up more security in the form of personal assets. People in business are so used to banks doing this that they just think it has to be done.
But the truth is that this kind of over-collateralization can make it hard for you to do what you want with your own assets. And luckily, there are non-traditional lenders who do not require cross collateralization at all.
REASON NO. 7: Most banks need proof of income.
Many small business owners and self-employed people who want to borrow money have incomes that are unpredictable and hard to prove. This is true for many good reasons, but most traditional banks don't care. Very few of them will give out loans for commercial real estate without full proof of income.
The "Stated Income" method is an alternative that is used by some non-traditional sources of loans. Look for a lender who uses the "Stated Income" method and doesn't need proof of your income.
