Seeking your first commercial loan may seem intimidating. Where do you start? Do you need an entire place of business or just some equipment to get you going? Anytime an entrepreneur wants to take out a loan for a business, whether it’s for equipment or basic business needs, it requires a lending agreement between them and the financial institution. A Denver commercial real estate loans agent can offer assistance through the process of commercial lending.
Commercial lending requires a rigorous amount of time as the application itself requires detailed forms such as tax returns, accounts receivables, financial statements and all accounts payable report documents. It may also require providing additional information that pertains to collateral being offered to secure the loan. 30-60 days is the typical time frame for the application process to be completed; however, this is all depending on the information presented being correct.
Loan to value is a way that lenders measure the loan amount against the collateral value. For example, for real estate loans Denver homes the borrower is required to put down 20% of their own money for the LTV to meet 80%.
The lender of the commercial loan that you’re applying for wants to see how you are going to generate income to pay the loan at least 1.25x. This is called the Debt Service Coverage Ratio . It takes the business’ net operating income and divides it by the total debt the business is required to pay. Your business plan needs to have strategies that generate consistent cash flow even during the slower seasons so the lender wants to know how you plan to keep the cash flow during these slower times.
The Overall Structure
Because the lender doesn’t want to risk fixing the commercial loan rate for an extended amount of time, you can expect a commercial loan to be 5 years or less with a 25 year amortization period. The interest rates and commercial fees that apply to the loan are all depending the type of business and the condition it is in, the strength of the owner/generator, and the type of loan needed. The interest rates will be higher than consumer rates because of risks involved with lending to businesses. You can expect your fees to be paid upfront or bundled with your loan and these fees typically include property appraisal cost, loan application or origination fees, survey fees, and legal costs. If you want to pay off your loan early, the lender will add prepayment penalty fees that are often set to a sliding scale and will depend on the level of risk posed to your loan.
Are you ready to take out a commercial loan for your business? Perhaps you’re starting a new business endeavor and are seriously inquiring about commercial lending. Bold Funding Group has an established following that provides authentic financial services and financial advice for all business needs. Contact them today for more information!