What You Need To Know About Commercial Real Estate Loan Approval

by Dedham Savings Financial Expert

In order to get approved for a commercial real estate loan, you need to fulfill a host of requirements. Just like in the case of residential property, you may need to take out a mortgage loan when you are looking to invest in commercial real estate. However, the factors affecting the approval of commercial real estate loans are quite different from personal mortgages. In fact, they are a lot more tricky and demanding. Lenders look at various factors when considering approval, including property appraisals, credit checks, down payments and your debt service coverage ratio before approving any loan.

Property Appraisals

Property appraisals are an important part of the approval process for commercial real estate loans MA. These appraisals are carried out in order to determine the market value and cost of the commercial property in question. In the case of commercial loans MA, these appraisals ensure that lenders don’t end up loaning more than necessary. This also helps lenders avoid losses in the lending process. The value of any commercial property depends on numerous factors such as size, accessibility, location, condition of the plumbing, the roof’s condition and more.

Credit Record

Another important factor that is taken into consideration for approval of commercial real estate loans MA is your credit record. A good credit record is vital for getting approval for commercial loans in Massachusetts. However, the requirements for credit records are much more stringent in the case of commercial property when compared to residential property. Apart from checking your credit score and history, lenders also prefer that borrowers have comprehensive asset documentation and a solid income to ensure that they will be able to make the loan payments. Similarly, lenders may also ask for proof that your future business will be profitable.

Down Payments

Residential real estate loan seekers can get away with smaller down payments; however, this is not the case for commercial loan seekers. Because the price tags on commercial property are much higher, lenders are often more cautious when approving commercial loans. Large down payments are therefore absolutely necessary to ensure the approval of these loans. Most lenders expect at least 20% of the loan amount to be put down as down payment. That being said, some may also expect 30% or even 40%.

Debt Service Coverage Ratio

The debt service coverage ratio refers to the ratio of money generated by the property in the form of rents and other types of fees or net cash flow against the monthly mortgage payment amount or the debt service. This gives lenders a clear idea of how much you should pay for your commercial property loan on a monthly basis.


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About Dedham Savings Junior   Financial Expert

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Joined APSense since, March 6th, 2014, From Dedham, United States.

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