In 2017, FDIC insured commercial banks approved $4.2 Billion in real estate secured loans. And over 30% of those loans consisted of nonfarm, commercial real estate.

That’s a ton of commercial real estate loans!

The market has never been better to start investing in commercial real estate. But before you do, get your financial ducks in a row. Arm yourself with the best tools to get the best deal.

Here are our top 7 tips to get the best terms possible on commercial mortgage loans.

1. Know Your Credit History

Be honest with yourself about your credit history. Commercial lenders will always check your personal credit. So be prepared for what they’ll find.

A personal guarantee is a document that states that you guarantee your business will pay back a financial obligation.

It’s standard practice on many commercial real estate loans. Especially if you’re just starting or are a sole proprietorship.

That means that the lender’s going to look at your personal credit. If you have judgments, bankruptcies, or derogatory accounts, they’ll find out.

Know what’s on your credit before you stroll into the lending office. This gives you the best bargaining chip when it comes to getting better loan terms.

2. Have Your Financials in Order

Commercial real estate loans are made for a business purpose. And your lender requires that your business be able to make money to pay off the debt.

How the business makes the money depends on two factors: the type of business and the type of commercial property you plan to buy. The financials you provide depend on these factors as well.

For example, a real estate holding company will have different financials than a manufacturing company. So do your research on which type of financials you need to bring with you to your loan meeting.

It’s most common for lenders to request the following:

• 3 years of personal tax returns
• 3 years of business tax returns or accountant-prepared statements
• Business debt schedule
• Personal financial statement

If you show up prepared, they’ll know you’re ready to play ball. It saves time and money for both you and the lender. And that means better loan terms for you!

3. Know the Value of the Property

Property value is one of the primary criteria a lender looks at when giving out a commercial loan. So you need to know the value of the property and be ready to justify that value to your lender.

If you’re buying the property, the purchase price is the starting point for determining value. They use a metric called Loan to Value (LTV) to determine risk. The higher the LTV, the riskier the loan.

A bank usually wants an appraisal or a real estate evaluation to shore up the purchase price. You don’t have to do this yourself, but you can prepare for this by doing some research.

Ask your commercial realtor for their advice on the value. Check out similar properties in the area. Then get a second opinion from a different realtor.

Property value is also determined by the income-producing capabilities of the property.

Let’s say you plan to buy a fixer-upper rental home. Right now, the home rents for $400 per month. But you know that with $1,000 in minor upgrades, you can rent it for $600 per month.

The value of that property is actually greater because of its potential income. Be ready to justify your property value. When the bank sees the income potential, you’ll get better terms on your loan.

4. Prepare Projections

This goes along with the property value we discussed. In the example of the rental home, you need to have those numbers prepared before you walk into the bank.

Don’t rely on the bank to calculate them for you. Show them how this property will make money. The type of projection you need depends on the type of business you’re in.

Financial projection templates are available all over the internet. And they don’t have to be difficult. Do some basic internet research on how to prepare a projection and go for it!

5. Be Prepared to Walk

Check around with several lenders. Don’t back yourself into a hole by getting in too deep with one lender. And keep your options open throughout the process.

Be realistic with your credit, property value, and income projections. If the terms aren’t right, walking away saves time and energy for both you and the lender.

6. Do Your Research on the Market

Every local real estate market is different. Know how your market is doing at the time you buy.

Market research lets you know a ballpark for rates and terms. Click here to learn more about current commercial mortgage rates.

Talk to other real estate owners of similar commercial properties. And talk to your real estate agent. They know the market better than anyone.

7. Put Money Down

This might sound like a no-brainer, but many people don’t think about money down when they start investing.

If you don’t put money down on your purchase, you won’t get desirable terms. Period.

Remember when we discussed LTV earlier in this article? That comes into play here. If you can get your LTV down, you’ll get better terms.

Take a realistic look at your personal finances and where you can come up with cash. Some options for ways to come up with cash include:

• Sell another property
• Cash in stocks or bonds
• Borrow against life insurance or retirement accounts
• Take out a personal loan or a 2nd mortgage on your home
• Refinance vehicles to get cash out

Follow the golden rule of lending: the more cash upfront, the better the terms.

Get Rockstar Terms on Your Commercial Mortgage Loans

With these tips, you’ll be knowledgeable and prepared to get the best terms possible on your commercial mortgage loans.

Do your research. Know your property and your credit history. Have your historical financials and projections in order.

And find the cash for a down payment. You’ll walk out of your lender’s office with rockstar terms!

Looking for more tips? Check out our real estate investing page for more useful articles like this!