Apr 14, 2020

Whether you’re new to commercial real estate or you’ve completed projects in the past, you likely know that finding the right financial support is essential.

Thus, one of the essential real estate basics to learn is how to get a commercial real estate loan.

There are various preparation steps you should take before you start the actual loan application process. Nevertheless, knowing where to start in commercial real estate investing can seem a bit daunting.

To aid you with your search, we’ve put together the following points to consider when looking for the right commercial real estate loan.

How to Get a Commercial Real Estate Loan

1. Make an Outline of the Project

When applying for any loan, you should have an understanding of why you need that loan in the first place.

What kind of project are you undertaking? What are the specific financial needs of this project?

Let’s say your project’s goal is to renovate a hotel building that you own. Once you know this goal, you can then delve deeper into the needs of the project.

Perhaps you require certain construction materials or machinery to complete your renovations. Another aspect to determine is the overall timeline of your project.

Altogether, understanding what your project’s goals, needs, and timeline are will aid you in finding what kind of loan will best fit those needs.

Additionally, when you do apply for a loan, you should be able to describe your project to a lender.

While they don’t need every detail, being able to outline the structure of your project is a crucial part of successfully applying for a loan, especially when you write up your proposal.

This proposal shows a potential lender what your intentions are with your project and how responsible you are as a project manager and, as a result, how capable you would be as a potential borrower.

2. Explore Different Commercial Real Estate Loans

Now that you have a better understanding of what your project requires, you can narrow down your search for a loan.

Generally, there are various loans that a commercial real estate project can benefit from. However, each loan is structured for different needs and timelines.

The most common types of commercial real estate loans you’ll find are SBA loans. Specifically, these are SBA 504, SBA 7(a), and Construction loans.

Let’s use our example project from before. When looking for the right loan, you would likely want to find one that supports the purchasing of necessary equipment.

For now, let’s say the timeline for your project would require a loan with a long-term repayment schedule.

In this scenario, the best loan would be an SBA 504 loan, as it is specifically structured to assist business owners in purchasing commercial real estate and machinery for their projects.

Conversely, you could also consider one of the various types of SBA 7(a) loans that are available. The main differences between SBA 504 vs. 7(a) loans are term length and loan amount.

In comparison to the SBA 504 loan, the SBA 7(a) loan tends to have a shorter loan term of 25 years maximum and is often used when a borrower needs a smaller loan amount.

The third type of CRE loan that we mentioned is a construction loan. These loans are beneficial to business owners who are looking to expand on an existing property or build out a new franchise location, for example.

Overall, a construction loan is beneficial to these types of projects because of how the loan is structured.

A construction loan allows a borrower to only pay interest payments for the first two years.

This structure allows the borrower’s project to generate value over those two years as well.

3. Assess Lenders to Find a Beneficial Partnership

Once you’ve narrowed down your choice of loans, knowing how to find the right lender is your next critical step.

Much like your previous steps, finding the right lender comes down to what your project’s goals are and the kind of loan you require.

Simply put, the right lender for your project will be unique to your needs and expectations.

In addition to assessing a lender by the loans they offer, you should also consider what a potential partnership with them may offer.

Naturally, an ideal lender will be one that understands the industry you’re working in.

For example, lenders like AVANA Capital have almost two decades of experience in working with business owners to aid them in growing their companies.

A lender like AVANA is appealing because of the unique insights this experience provides its team and its clients.

With this experience, AVANA Capital can create loans that are unique to a client’s needs. Additionally, as a partner, AVANA’s team guides clients throughout their projects.

In the end, finding the right lender and partner will ensure your project has support and is thriving.

Are you in need of a unique financial solution for your commercial real estate project?

Contact the team at AVANA Capital, who will help you choose the right loan for your project’s goals.

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