Commercial Real Estate Loans

Commercial_Real_Estate

Details About Commercial Real Estate Loans:

Commercial real estate loans are used to purchase income producing properties such as an apartment complex or an office building. In general, the commercial real estate loan requirements are good credit, proof of profitability for 2 out of the last 3 years of business, a down payment (typically 10%), and a Debit Service Coverage Ratio (DSCR) of 1.25 or higher. Your DSCR can be calculated by dividing your Net Operating Income by your Debt Services. You may use the commercial real estate itself as collateral for the loan, however some lenders may also require you to assign your rents or leases as additional collateral.

What do lenders look for?

Lenders may require bank statements, personal tax returns, business tax returns, business registration documents, and proof of profitability for 2 out of the last 3 years of business. They may also request a UCC-1 (Uniform Commercial Code-1) financial statement, which is a legal form that a creditor files to give notice that it has an interest in the personal property of a debtor.

Best practice tips:

  • Be sure to have proof of profitability for at least 2 years  
  • Determine the loan-to-value ratio (LTV) — some lenders will not exceed 80%
  • Learn how much you can afford with our mortgage calculator
  • A good credit score is very important, learn how to improve your credit score today

Extra tools for you:

  • Learn more about being a Real Estate Entrepreneur here
  • Start your new business venture off right by accurately recording your taxes using the 2016 TurboTax Software
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