Top 3 Requirements for a Commercial Loan
Have you recently applied for a commercial mortgage? Chances are you’ve noticed just how strict lender requirements have become. From certain types of liability insurance to cash flow, lenders want to be sure they’re covered at all costs. It seems as those they’re honing in more than ever on property value. Based on an article by the San Francisco Chronicle, we’ve narrowed down the top three requirements lenders look for when issuing commercial loans.
- Documented Property Value – The property being offered as collateral must be worth the mortgage loan requested. Using a loan-to-debt ratio, the amount of the mortgage is divided by the sum of the borrower's net income and the property value resulting from an appraisal. This percentage needs to be no more than 75% to qualify for the loan.
- Property Cash Flow – Lenders weigh the cash flow of the business to the debt it carries, and usually prefer a steady net income that is at least 20% greater than the debt. The borrower must prove income, expenses and his/her experience running the company in detailed statements. The lender may request for proof of savings and assets that can be converted into cash, in case of a catastrophic business loss.
- Income and Assets of the Guarantor - The guarantor is the person, usually the owner of the business, who guarantees the loan will be paid should the business default. A lender may require that a guarantor, or person guaranteeing the loan should the business default, be used for a business in order to receive the mortgage. The income, assets and credit history must then be documented to meet the requirements set by the lender.
Be sure to weigh these factors before applying for a commercial mortgage. Do you meet all of the requirements?
At Assurance, we’re experts at maximizing the health and minimizing the risk of small and medium-sized businesses. Contact a representative today and get your business off on the right foot.
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