How to Think Like a Lender before Applying for Commercial Real Estate Loan?


Commercial real estate loans are a quick and effective measure to acquire funding for essential investments, renovation projects, or other essential real estate works. But applying for and getting the necessary financing is quite tricky. Most banks do not offer money for commercial properties as it can be risky.

But if you have decided to invest in commercial real estate, you need to prepare yourself with all the essentials before you move ahead with the process. In such instances where you cannot qualify for a traditional loan contacting hard money lenders will be in your best favor.

To acquire the necessary fund in the shortest time possible, the best thing you can do is think like the lender and prepare yourself for all the necessary essentials. 

The guide here has covered everything you need to ensure you get the necessary funding for your commercial real estate investment.

Commercial real estate loan- What to Know?

The borrowers mostly look for commercial real estate loans for renovating or purchasing a commercial property. 

At the same time, the lenders see that the property is owner-occupied, meaning that the owner must have at least 51% of the holding in the building to get the commercial real estate loan. 

Further, you have to decide the type of loan you are willing to take, which will depend entirely on the business or the property. Once you know the details, you can narrow down the list of the lender’s options.

What do the lenders look for?

It will be better to think like a lender before you apply for a commercial real estate loan and prepare yourself accordingly. This will ensure you get the financing in a short time to fulfill your requirement.

Generally, commercial real estate loans are complicated. Small business firms are considered to be riskier and might fail. Thus, the commercial lenders and the banks will have to look over the account books to verify if the business has enough cash flow to repay the loan on time.

1. Business finances

The lenders mainly calculate the debt service coverage ratio of the company, which is also known as annual net operating income. The amount will be divided by the yearly total debt service to identify the actual financing of the business. Generally, the lenders require a 1.25 or greater percentage to provide the loan.

For example, when your business is depth free, and you have applied for a commercial real estate loan of $100,000, the lender will see if you have an NOI of $125,000 or more.

2. Business credit

The lender will also check the business’s credit score, the number of commercial loans, and payment history to determine the terms of the payback period, interest rate, and down payment. 

The required FICO Small Business Scoring Service credit must be 155 for the government agency flagship loan programs or SBA 7(a) loan. However, certain exceptions allow small businesses to avail of the loan at a lower score. In such cases, your business must be an entity. 

In addition, sole proprietorship to the real estate will be considered personal rather than commercial options, putting the personal wealth at significant risk when you default on the loan.

3. Personal finances

Small business firms are usually controlled by a single owner or a few partners. The commercial lenders or the banking institution will want to check the personal credit score and the repayment history to decide if you had any financial problems in the past, tax liens, defaults, foreclosures, or others.

When you have a lower credit score, it can harm your chances of getting approval for a commercial loan.

4. Property characteristics

When taking a commercial loan, the property acts as collateral. The lender tries to get a suitable property as collateral which allows him to get the amount when the borrower fails to repay the loan. 

Thus, to qualify for commercial real estate on a small business, the owner must occupy at least 51% of the holding. You can also consider applying for an investment loan that acts as the right option for rental properties.

5. Hard money loans

Hard money loans generally base loans on the property value concerning the creditworthiness of the borrower. The eligible properties herein can include storefronts, commercial buildings, and other facilities like a warehouse.

Generally, the loan-to-value ratio for commercial real estate loans comes around 65% to 80%. So, for example, if the property is appraised at $200,000 and the lender has provided the loan at 70% LTV, you are expected to put down at least $20,000 for getting a loan approved of $140,000.

Commercial Real Estate Loan- How to Prepare for Application?

The commercial loan process can be slow and requires a lot of documentation through traditional means. However, when you contact hard money lenders, you will have a chance to secure the loan within days without providing much financial information. 

The lenders and the banking institution will ask for the following.

• Business Tax returns

• Business plan

• Your records books and financial reports

• Details about collateral

• Last three months of bank statement

• Third-party appraisal for the property

In contrast, when you contact hard money lenders, they will focus on the property’s current and future value. Besides, there are fewer requirements for financial disclosures.

How to guarantee loan approval?

Business owners with a poor credit score or a newly established business might face small obstacles when applying for a commercial real estate loan. However, there are certain things you can keep in mind to improve your chances of getting the loan approved. This includes.

• Paying off the existing debts and taking other additional steps to improve the credit score

• Adding an investor

• Providing additional collateral in case of availability

• Opting for a less expensive property

• Trying to pay a big amount of down payment or interest rate

Where to get the loan?

There are multiple options you can consider for getting the required loan for commercial real estate property. But remember, most loan approval requires a good credit score, which means you must either work on your credit score to have a better chance of getting a loan with traditional means or opt for hard money loans. 

You can easily find hard money lenders to get the required funding. It is a secure and fast way of getting the money necessary. The process is super simple, with few documentation requirements. However, the interest rate herein can be higher than the other options; you need to consider the advantages and drawbacks of the same to decide if it’s the best course of action.


Getting the loan approval can be challenging. It would help if you stayed prepared for all the essential documentation and steps to guarantee a better chance of getting the necessary loan for an investment. 

With proper measures, you will get benefit from the available opportunity and succeed. In case of emergency, you can take assistance. 

Private Capital Investors is a reputed company that can offer you timely service. They have experienced professionals who can deliver you the help you need to get the required commercial real estate loans. Besides, they will ensure to bring forward the best rate to guarantee you get the loan approved at a lower interest rate.

Want to learn more? Get in touch with us today.

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