Commercial loan criteria: You might wonder what criteria lenders use when assessing your eligibility to borrow money.
While it is important to remember that different lenders have different criteria, this guide will give you a quick overview of the most popular criteria for commercial loans in the USA.
What’s a commercial loan?
Commercial loans can fund equipment, hire staff, and buy property. Commercial lending can be complex, especially when borrowing commercial property. The eligibility criteria vary significantly between lenders. We recommend you work with a lending specialist to navigate the market and find a suitable product and a competitive rate.
How can lenders determine my eligibility for a commercial loan?
The factors determining your eligibility for a commercial loan depend on many factors. These include the loan type, credit score, and time trading. Although each lender will have their criteria, the following is a general guideline for applying for commercial finance.
Guidelines for a Commercial Property Loan
Lenders will evaluate your eligibility to borrow if you want to purchase commercial property such as a factory, warehouse, or retail store.
- Property Details Your lender will need to know the type of property you want, its location, and any features. Some lenders will only lend money to properties located in certain areas. Rural properties may be harder to get funding than properties in the metro area. The type of property determines LVR. For example, unique properties such as petrol stations or childcare centers have an LVR of 50. However, standard commercial properties such as office spaces and warehouses may see an LVR of up to 70%.
- Financials Your lender will ask for your most recent bank statements to verify clear repayment history and steady cash flow. They will also want to see your financial statements (i.e., They will also ask for your business’s financial statements (i.e., balance sheet and profit and loss statement). It will enable the lender to examine your income, expenses, and net assets. The lender will also examine how much money you have available for a deposit. Lenders generally require between a 20% and 30% deposit to secure a commercial property loan or equity in an existing property.
- Personal information: To verify your identity, you will need basic information such as your ID number and contact information. Lenders will also need your ABN and business details to process your application.
There are many types of commercial property loans. The one you choose will determine which criteria lenders use and how much documentation you need.
These are the three most common types of commercial property loans:
- Loans with no credit check
- Low-doc loans
- No-doc loans
A full-doc commercial property loan requires a thorough assessment of the borrower and any applicants or guarantors. All income and liability statements (e.g., Financial statements, tax returns, and credit card statements are required. Full-doc loans are more complicated and require more documentation, but they also have more competitive rates.
Low-doc loans require less paperwork, as the name implies. You or your accountant will need to declare your income and the ability to repay them. It gives businesses with low-profit margins more flexibility and choice and allows them to access finance (though not necessarily from banks or alternative lenders). Lenders that accept applicants with low credit scores will take on greater risk by not seeing complete financial statements and may charge higher interest rates. The approval and application process are usually much faster.
A strong exit strategy is required to qualify for a no-loan. It means that lenders will be able to recover losses if you default on your loan. No-doc loans don’t require any documentation or accountant declarations. The application process for no-doc loans is faster than that of full-doc loans, but there will be an additional risk.
Other types of commercial finance
Secured loans, unsecured loans, and credit cards are all options for commercial finance. The type of financing you need will determine the best option for you. Asset finance is the best option if you are looking to purchase a heavy machine or commercial vehicle. Unsecured finance can be a quick financing option if you have urgent cash flow requirements, such as for staff hires or stocking up on supplies. Unsecured finance is often approved and settled in 24 hours.
How applying to the commercial property could affect your credit score.
Your credit score can be affected by applying for any loan, even a commercial loan. Multiple finance inquiries will be kept on file. It can affect your credit score, even if the application is not accepted. Lenders prefer high credit scores. You should be cautious about how many inquiries you make and ensure you are eligible for funding.
Commercial Lending USA allows you to conduct a soft check, which means you can determine if you are eligible for finance before you apply.
Commercial Lending USA’s simplified application process is another great benefit. Working with an expert can help you cut through the bureaucracy of applying through a bank.
Use our online loan searcher to determine your eligibility for commercial financing.