| |
Commercial financing is underwritten on a case by case basis. Every loan application is unique and evaluated on its own merits, but there are a few common criteria mortgage brokers look for in commercial loan packages. First a financial analysis is completed. This analysis includes an evaluation of the debt coverage ratio. The DCR is your monthly debt compared to your monthly income. Second your credit worthiness will be evaluated. This portion of the analysis will look at past financial records for the business and may include personal financial history in certain cases. Finally the condition of the property is examined. All of the above factors will influence your ability to secure a commercial loan.
There are many types of commercial financing options available to borrowers and they include adjustable rate commercial loans, wrap around mortgages, credit lines, and balloon loans. Adjustable rate commercial loans have an interest rate that varies through out the life of the loan. A wrap around mortgage is a new mortgage which literally wraps around the old mortgage. By using a wrap-around mortgage, the buyer makes payments on the new mortgage directly to the seller, and the seller continues to make payments on the old mortgage. Credit lines provide a business with resources to fill temporary cash shortages that are the result of the difference between the period of cash outlays and collections. Credit lines are usually used to finance project or contract related work, receivables, and inventories. Commercial borrowers are also able to obtain a balloon loan. Balloon loans feature fixed interest rates for a specified period of time. When the loan reaches maturity the outstanding balance must be paid in full by the borrower. There are many financing options available to commercial borrowers and your investment plan should be evaluated prior to deciding on a specific type of commercial loan.
Commercial lenders evaluate many different types of financial information to determine if your business is worthy of a commercial loan. Lenders often require three years of income tax and financial statements, profit and loss statements and balance sheets. In many cases personal financial statements are also required. Projected cash flow statements and pro formas for the next 12 months are commonly requested as well as a complete business plan. When all financial data is presented it will then be evaluated and a decision regarding your loan will be made.
| |
