What they want to know before you’re given the dough to grow.

If you’re like most commercial industries looking to renovate your existing structures or build a new location, you’ll likely need a commercial construction loan. These loans are typically offered by established banks or specialized lenders. Before they shell out the funds needed to break ground on your new store or to remodel an existing space, there are a handful of numbers and documents they’ll want to see. 

1. Your Company’s Financial Records

Unlike residential mortgage lenders who tend to extend too much credit to home buyers looking for a home loan, commercial construction loans tend to be more cautious. Smaller businesses are seen as extremely high risk due to their tendency to fold easier than larger businesses. For this reason, lenders will want to review your company’s financial records to ensure your company has adequate cash flow to make your loan payments. 

Firstly, a commercial construction mortgage lender will want to determine your debt service ratio—your annual net operating income (NOI) divided by your company’s annual total debt service—how much money you’ll need to pay back (principal and interest included). A 1.25 or more is the normal accepted amount.

Just like a residential real estate loan, a commercial real estate loan application will also require a credit score. This particular credit score is typically your FICO SBSS credit score of no less than 140. With this said, depending on the situation and the lender, there may be other ways of getting around a credit score lower than this. 

2. Personal Finances

As weird as it sounds, commercial construction loan providers may want to see the personal financials of the heads of smaller businesses. Though seen as slightly invasive, due to the failure rate of many small businesses, these records may be necessary to mitigate undue risk. In looking at these records, lenders will typically look for past foreclosures, court judgments, tax liens, or low personal credit scores. Any of these discrepancies may be seen as red flags and may prevent your company from achieving a desirable interest rate or a loan at all.

3. Information About the Property

In most instances, the property that someone is borrowing money to purchase is ultimately the collateral for the loan provider. Because of this, commercial construction lenders will want to know what they’re buying. The type of property or property value may greatly impact the company’s ability to obtain a loan or a favorable interest rate. 

Some other stipulations of commercial construction or commercial real estate loan will likely require that your business is occupying at least 51% of the location. Buying commercial real estate with the intent for other businesses to occupy a majority of the space requires an investment property loan—a different style loan with differing stipulations. 

In Conclusion

Building or remodeling your commercial location doesn’t have to be a headache. Getting the details squared away may feel like an uphill battle, but partnering with a commercial construction company can make all the difference. For help throughout every step in the process for businesses in the Greater Tulsa, OK area, look no further than your friends at Cowen Construction.