Real Estate Businesses Financing

The place where your new/growing business is located matters much, and you may have to buy real estate to realize your dream. That said, it is challenging to discover the right business location. Running the business becomes even harder without real estate financing. Therefore, businesses must prioritize getting the ideal financing option for their real estate ventures. Here is a guide on some of these options, with their pros and cons.

Real Estate Financing Options

Various forms of financing options and lending institutions that offer these are available in the market. Every single lender has its own requirements, advantages, and disadvantages. You may look for financing from a local credit union, your bank, the SBA or an SBA-authorized lending institution, and other lenders.

Approaching The Bank

When applying to this lender for a real estate loan, anticipate answering several questions, paying for a property appraisal, and submitting the documents regarding your business’s and personal financial affairs. After 2008’s recession-induced credit crisis, banks have made their lending requirements tighter. This has made it difficult for certain small business owners/borrowers to be eligible for bank real estate loans. Are you starting a new business? If yes, the bank where you apply for the loan may decline your request as your business does not have some years of operational history.

The Advantages

• If you become eligible for the loan, your bank may offer you a very low rate of interest for it.
• The loan may assist in making your personal credit history better. If it improves, you could easily be eligible for a loan when you require money in the future.

The Disadvantages

• If yours is a startup/new business, you might fail to be eligible for the loan. As per Foxbusiness.com, several banks require business borrowers to have 36 months of financial information to offer them the loan. Therefore, the banks avoid financing startups or new businesses.
• The loan for real estate business purposes comes with a long-drawn application process, plus it takes a month at the least to process the loan.
• It is a must to produce a comprehensive business plan that outlines your business, bank, and tax records, together with enough collateral. The collateral is vital to protect the bank should you default.

SBA Loan

The SBA provides many loans to those who own small businesses. The federal agency never lends money directly; instead, they guarantee a part of the loans given through partner lenders, usually CDCs or banks. These SBA-authorized lenders provide a loan specialized for businesses that require the funds to purchase long-term assets, such as real estate or equipment. As per womanowned.com, these are usually loans that come with long terms and fixed interest rates.

The Advantages

• SBA loans offer financial assistance to those small businesses that cannot get funding by themselves through standard banks. The loans are offered through private lending institutions, plus the SBA guarantees these partially. Therefore, it is a lot easier to satisfy the financial requirements for the loan, plus you are more likely to be approved for it.
• An SBA loan for small business purposes would usually offer you a low rate of interest.

The Disadvantages

• The Small Business Administration is a federal agency that guarantees a part of the loan. Therefore, it comes with a more detailed application procedure, plus you need more documentation for it than what a bank would require from you.
• Your credit, business plan, resume, expertise, and capability of managing a business will be scrutinized during loan determination.
• When you are planning on moving to the new property in the market that you feel suits your business, reconsider. Approval is likely to take up to 3 months.
• Real estate business financing via the US SBA can take up precious time to get approval.

Credit Union

An American credit union is like a bank, only it is a nonprofit organization that its members/customers themselves own. It offers loans for real estate business purposes that are akin to bank loans.

The Advantages

• If it is possible for you to satisfy the nonprofit’s requirements, you would usually get lower rates of interest than through another form of lender.
• With members owning the organization, it would typically provide the terms that are more favorable to borrowers.
• There tends to be more flexibility with regards to your creditworthiness than at your average bank. It does not always establish as high a credit score criteria as a US bank.

The Disadvantages

Real Estate Financing

• The lender will necessitate you to establish your creditworthiness using collateral, your business and personal credit history, plus your tax-related documents.
• You will have to produce a comprehensive business plan summing up your business, service or product, marketing plans, and competition.
• The institution will necessitate you to become a member to be able to borrow from them. This move will involve opening a checking and savings account at the union.
• You must qualify for the membership; usually, members have similar characteristics such as the state or area where they live.

Other Lenders

There exist alternative lenders that provide real estate financing options, with much more ease and flexibility as compared to credit unions, banks, or the US SBA.

The Advantages

• The lenders provide loans with a quicker application procedure and less stringent criteria. Rates of interest may be a bit higher than what a bank provides, but an alternative lender is more likely to approve your loan request.
• The loan application and processing usually take less amount of time; these involve less documentation and are easier to effectively navigate.
• Other lenders often consider your business’s potential more than the credit history. This means you do not always need to have an excellent credit score to qualify for financing from these lenders.

The Downside

• The lending institutions assume greater credit risk due to easier credit criteria, so the rates of interest are usually a bit higher than credit unions or banks.

Final Thoughts

The key to your small business success is selecting the best loan for its purposes. To know more regarding your loan options, get in touch with Building Block Capital.