Using the 3 C’s of Commercial Real Estate Loans To Qualify for a Loan
When exploring your options for purchasing property to house your business, you have many things to consider. Aside from finding the perfect location with the best terms and conditions, you also need the funding to secure it at the price you need. There are a few avenues you can take to get the money you need to make your business aspirations a reality.
Check out the three C’s of commercial real estate loans as a guide to help boost your chances of landing the loan.
The 3 C’s Provide Critical Information
Wondering what’s the big deal with these three C’s? Lenders tend to focus on these three main areas in order to determine eligibility for loans:
- Credit of the applicant (borrower)
- Commercial property collateral
- Commercial property cash flow
If you are lacking in any one of these elements, your bid for the property you want may be rejected.
Credit Worthiness of the Applicant
The credit score of the individual or business is a critical starting point for the underwriting process in commercial real estate loans. If the borrower is an entity or trust, the business credit score or individual members scores will be considered. The usual terms are:
- Minimum 660 individual score
- No tax or property liens
- No bankruptcy for seven years
- No short sales or other property-related filings in the previous three years
The Use of the Commercial Property as Collateral
As in most cases, the property itself is the collateral used to guarantee the loan terms get fulfilled. The appraisal of the property is key as it determines how much of a loan you get approved for. The resulting mortgage will also entitle the lender to an assignment of rents and leases should you decide to lease all or part of the space to someone else. Those leases will be subject to the collateral of the building.
The Cash Flow of the Property
If the commercial real estate parcel you are considering is leased out, the lender will consider how much money is generated by those contracts. If not, the profitability may be considered in its place, as a way to show the kind of traffic the location provides. In the case of starting from scratch, your business’ cash flow and business practices will be disclosed to the lender instead.
The three C’s of commercial real estate serve as a checklist of sorts to allow you to know what underwriters are honing in on. The process may seem daunting, but knowing what to look for and expect is key.
