Re: Pre-qualify for Loan? - Posted by ray@lcorn
Posted by ray@lcorn on August 16, 2005 at 16:47:32:
Commercial real estate finance works somewhat different than residential, and you’re coming at it from the wrong direction. We pre-qualify the lenders, and it’s a buyer’s market.
Loan brokers will tell you that pre-qualification for a commercial deal is wise or even necessary, but for different reasons than you might think. What they are after is a leg up on the competition when it comes to financing your deal. Having all your personal info prior to a deal being on the table gives them first shot at the financing. That’s where they get paid… always follow the money.
The fact of the matter is that without a specific deal to talk about, NO definitive loan terms can be quoted beyond the standard criteria for today’s rates and terms. But you can’t lock in today’s terms, nor will any lender issue a loan commitment, based solely on your personal financials. The property has as much to do with the ultimate loan terms as the borrower does, so save the effort. There is plenty of time to shop the financing during the contract phase of a real deal.
And I do mean shop. Commercial real estate lending is a very competitive arena. As you get active you will find there is a literal sea of capital floating around looking for deals. But not all lenders can do all deal types, so you need to pre-qualify the lender before even thinking about doing a deal with them.
The best source of small commercial real estate loans are independent local banks. But even then you have to shop around. Not every bank understands or desires to do commercial real estate loans, and you’ll have to do some homework before you’ll know what you’re looking for.
You should put some time into developing your investment criteria, a writing a business plan and getting your personal financial affairs in order.
With that done, then you’re ready to have exploratory meetings with the commercial loan officers of those banks. You might share the essential points of the business plan, your personal net worth, and your track record (experience), but you’d better be asking more questions than you answer. You need to know how the bank operates, how they underwrite real estate loans, and make sure they are the right kind of bank before submitting paperwork of any kind. The “right” bank will be the one that can share specific underwriting criteria that match your property criteria and investment goals.
For more on how to get started in commercial real estate, see this article: http://www.creonline.com/articles/art-268.html