A commercial property is one that earns monthly income by way of rent or lease. Unlike a residential property, a commercial property is for commercial purpose only and a lender treats the loan application from a different angle while advancing money on it. You have to follow a procedure in getting a loan on a commercial property. Unlike online payday loans which are approved instantly and often without credit check, with commercial property loan you have to organize a lot of documents and convince the lender about the commercial value of the property. Now, let us see the various steps to be followed in getting the loan on commercial property approved.
1. Resume of the borrower: The resume of the borrower is the most important document to show whether the applicant has any previous experience in developing a commercial property. It must contain the details of the previous properties developed, loans availed and repaid and the location of the previous properties. This information will make the lender to form a favorable opinion about the applicant.
2. Financial statement: The financial statement contains the details of the cost of the project, the source from where you are arranging the funds, the amount of the own funds the total time required to complete the project, the gestation period, the start of the earning from the property. If according to the financial statements your contribution in the development of the property is not sufficient you must bring in a person that is financially strong and willing to sponsor the project. The lender will be too happy to know that the project will not suffer from lack of capital.
3. Sponsor financial statement: The sponsor has to furnish the bank account details, his line of activity, the financial statements showing the tax returns for the previous three years, details of the borrowings to make sure whether the sponsor is financial strong to back you in case if any mishap like non occupancy of the property or fall in the rental occurs.
4. If you are a limited liability company you have to file the balance sheet, profit amp; loss statement and tax returns of the company for the previous three years. The balance sheet exhibits the reserves made by the company to fall back upon in case of emergency. A certificate from the accountant would be an added advantage and strengthens the application. You also must attach the certificate of incorporation and the articles of association of the company.
5. Property valuations: The lender will value the property from qualified people to ascertain the market value of the property. If you have already made the valuation please provide the same to the lender.
6. Sale agreement: The copy of the original sale agreement has to be produced to the lender to convince him that you are the legal and absolute owner of the commercial property. Unless ownership is established it is difficult to get the loan.
7. Legal opinion: The various documents pertaining to the commercial property has to be scrutinized by an expert advocate to ascertain the marketability of the property. In case if you fail to repay the loan the lender must be in a position to repossess the property and clear the loan outstanding. It is necessary for you to maintain the relevant documents pertain to the property and submit it along with the loan proposal.
8. Location of the property: The location of the property plays an important part in getting the loan. If the property is located on the busy street nearer to the commercial district it is easy to get the loan. On the other hand, if it is situated far off corner away from the business area it would be difficult to get the occupants. The commercial property may be lying vacant without any revenue.
9. Property managers: It would be easy for the lender to consider your loan proposal if you have appointed a professional group to manage the property. Before approaching the lender, have a discussion with the professional property managers and if possible enter into an agreement and enclose a copy of the agreement along with the other documents to the lender.
10. Environment clearance: If you are planning to develop the property that involves the clearance from the environment authorities go and get it before approaching the lender. Enclose a copy of the environment clearance with your proposal.
11. Photographs of the property: Good photographs of the property must be attached to the proposal, so that the lender has an idea as to the condition and appearance of the property. Take the photos in good lighting conditions so that all the angles of the property are clearly visible. However, the lender will get the actual condition of the property by own surveyors.
12. When you are ready with the above documents prepare an executive summary for your loan on commercial property. The executive summary should contain the key points of the loan documents so that the lender can have an overview of the several of the various documents you have submitted along with the loan proposal.
13. Credit report: Based on your financial information the broker will prepare a credit report and assess your credit scores. This is an important document that decides the amount of loan you are eligible, the repayment plan of the loan, and the rate of interest that you must pay on the loan.
The above documents must be arranged in a folder to be submitted to the lender. Many banks will have a detailed interview with you and the sponsor before releasing the loan. A physical inspection of the commercial property is conducted as well.