Shopping for a Commercial Loan? Avoid These Mistakes
by Nick Gromicko, CMI®
Like all businesses, inspectors sometimes need commercial loans in order to run equipment, expand, or market themselves. Fortunately, lenders have money and they want to give it to you (it’s what they do for a living), but you might not get the loan you need if you don’t approach the situation intelligently.
Take a few minutes to review these common mistakes that business owners make while trying to attain a loan before you try it yourself:
- Hire an inexperienced lawyer. You should spend the extra money on a commercial real estate attorney with a proven track record who is experienced in negotiating the type of real estate loan that you are seeking. While it sometimes pays to hire a relative or friend who happens to be a lawyer, the short-term convenience of this decision will cost you in the long run.
- Have no plan for how you’ll spend the money. Lenders are more likely to give you a loan if you can explain to them exactly how you plan to spend the money. They also want to see a timeframe in which you anticipate completion of the planned project.
- Don't shop around for the right lender. Make sure that you research the options offered by a number of different banks and other commercial lenders. While competition among lenders may keep loan terms relatively similar, it always pays to be patient and to use discretion during your research phase. It may be tempting to go to familiar lender with whom you have an established rapport, but there are new real estate products offered constantly, and it is worth your time to check out some of the other possibilities before going straight to your favorite lender.
- Have no cash on hand. You should have some cash available before applying for a commercial real estate loan. Commercial lenders like to see that you plan to fund a portion of the project with your own money.
- Ignore your balance sheet. Make sure that you are capable of paying off the loan while still having enough money to run the business properly. It seems like common sense, but many businesses fail to review their balance sheets and analyze their cash flow liabilities before entering into a commercial real estate loan agreement.
- Fail to have a sensible business plan. Have a well-structured business plan that includes all the necessary financial and operating data before seeking a loan. Lenders like to see that you are a responsible business owner with reasonable goals. Make sure you bring all the necessary documentation with you to make your case.
Fail to seek assistance from the SBA. It never hurts to check with the Small Business Administration (SBA) to see what loans they can help you attain or for any additional advice. The SBA has helped tens of millions of businesses and currently holds a portfolio of nearly a quarter-million loans worth more than $45 billion, making it the largest single financial backer of businesses in the United States.
Make sure your commercial property inspector uses the International Standards of Practice for Inspecting Commercial Properties.
