Steps to Secure Commercial Financing: A Complete Guide

Imagine this. That retail space you’ve been eyeing is up for sale. You looked at the zoning and studied all the comps. Now, only one thing is missing: the financing.

Now you’re wondering how do I get approved for commercial financing? What do I need before I apply? If you’re smart, these are questions you should be asking (unless you have mega bucks lying around).

In this blog, I’ll break down types of commercial financing, such as DSCR loans and hard money loans. We’ll also discuss what lenders look for in applicants, including those all-important credit scores and cash flow analysis. As well as tips on how to get approved for commercial financing. 

Dive Deeper into Your Real Estate Potential: As the founder and CEO of eFunder, I bring my extensive experience in real estate and commercial mortgage brokering to enhance your investment strategy. So, stay tuned for actionable insights, and don’t miss the exclusive offer at the end of this post, designed to revolutionize your lead generation approach.

Table Of Contents:

how do i get approved for a commercial financing

What is Commercial Financing?

Commercial financing is loans given for the purpose of buying or developing of land or property used by your business. At least 51% of this property needs to be utilized by your business for eligibility.

Besides conventional banks and credit unions, there’s also non-traditional lenders who specialize in helping borrowers with unique circumstances. They may provide alternative types of commercial loans like hard money loans where assets act as collateral instead of credit scores.

Different Types Of Commercial Loans

There’s a lot to choose from with commercial financing. From traditional bank loans with strict requirements and lower interest rates to more flexible options like SBA (Small Business Administration) backed-loans aimed at small businesses. Let’s look at these options further.

SBA Loans

The Small Business Administration (SBA) offers several attractive loan programs for businesses. One popular choice is the SBA 504 Loan. It’s designed for small business owners who need funds for major fixed assets like buying land or buildings. 

This type of financing often requires lower down payments and offers longer repayment terms than traditional bank loans.

Hard Money Loan

Hard Money Loans are short-term loans from private investors, they’re mainly relying on property value rather than creditworthiness. They’re quick to get, but they come with higher interest rates and shorter repayment terms. 

Conventional Loans

These are loans given by banks, credit unions or online lenders directly without any government backing. These typically have higher interest rates but more flexible than SBA Loan. This is because there’s no third-party involvement. 

For those looking to purchase an office building or renovate a hotel, conventional commercial real estate loans may be the best option.

Each loan type has its pros and cons. So it’s essential to understand what suits your needs, based on factors like interest rates, repayment terms, and eligibility criteria.

Key Takeaway: Choosing the right commercial loan hinges on your specific needs and circumstances. Assess SBA loans, conventional real estate loans, or hard money loans for their unique features and benefits. Keep in mind factors like interest rates, repayment terms, and eligibility criteria to make a choice that aligns with your long-term financial goals.

Factors Considered by Lenders

If you’ve ever wondered, how do I get approved for commercial financing, it’s essential to understand what lenders consider. This could be crucial for getting the real estate loan you need.

1. Credit Scores: The Gateway to Approval

A strong credit score means the difference between having your investment – and failure. It’s one of the first things lenders look at when evaluating an application.

Would you be willing to loan cash to someone who has a record of not repaying? Probably not. So, having a good credit score (preferably above 680) makes you more trustworthy and increases your chances of getting approved.

3. Loan-to-value Ratio

Besides looking at your shiny (or maybe not-so-shiny) credit scores, lenders also look at Loan-to-Value ratio (LTV). Essentially, this is the percentage of how much money they’re willing to lend compared with what your property’s worth. Generally speaking, if you have lower LTV ratios — meaning larger down payments — then thumbs up from most lenders.

4. Debt-Service Coverage Ratio

Lenders aren’t just interested in whether or not you can pay back their loan. They want assurance that even if things go wrong – like cash flow dips – repayments won’t stop flowing into their bank account. This is where debt-service coverage ratio (DSCR) comes in.

This figure indicates whether or not income generated by the commercial real estate will cover its operating expenses and debt service—making sure there are no hiccups along the repayment.

5. Cash Flow 

Lenders also consider your cash flow. They want to see that you have a healthy stream of income flowing into your business. This will ensure the loan gets will pay back.

If the income is not substantial, lenders could become concerned about their investment. So keep those financial statements clean and transparent.

Key Takeaway: Getting a grip on what lenders look for is crucial when you’re after commercial financing. They give high marks to solid credit scores, usually over 680 – it’s all about your trustworthiness.

The Loan-to-Value ratio (LTV) shows the amount they’d be willing to lend compared to the property’s value; lower ratios are always better. For peace of mind, lenders also check out the Debt-service Coverage Ratio (DSCR).

The Commercial Loan Application Process

Getting approved for commercial financing is all a matter of being prepared. Let’s take a closer look at how you should prepare.

Working with Commercial Mortgage Brokers

The first step involves choosing whether to work solo or hire a commercial mortgage broker. They can provide valuable help in securing real estate loans. They have deep connections within the lending industry and know what lenders are looking for in an application. eFunder can guide you through this process seamlessly and help you secure that real estate loans. 

Moreover, commercial mortgage brokers are well-versed in gathering necessary documents like financial statements and tax returns that demonstrate your business’s viability. But remember, their services come at a cost which usually is 1% – 2% of the loan amount.

Next is you’ll need to prepare essential documentation. Lenders typically ask for both personal and business credit reports. Therefore maintaining good credit scores (above 680) is crucial as they play an important role when applying for any kind of financing including commercial property loans. 

SBA Loan programs for example, particularly look into it closely before approving funds.

Besides credit scores, cash flow statements indicating how much revenue your business generates also make up part of the application package. Lenders want assurance that you have enough income coming in each month to cover all expenses plus additional funds left over to service debt payments comfortably.

Preparing Commercial Real Estate Loan Requirements

1. Property Analysis

Lenders will assess the property being purchased or refinanced. They’ll look at factors such as location, condition, type of property (e.g., office building, retail space, industrial warehouse), and its income-producing potential.

2. Borrower’s Financial Information

 Lenders will scrutinize the financial health of the borrower or borrowers. This includes personal financial statements, credit history, tax returns, and other relevant financial documents. 

For businesses, lenders may also request financial statements and cash flow projections.

3. Down Payment

Commercial real estate loans typically require a down payment, which can range from 10% to 30% or more of the property’s purchase price. 

The exact percentage depends on factors such as the borrower’s creditworthiness, the type of property, and the lender’s requirements.

4. Business Plan or Property Projections

For new developments or income-producing properties, lenders may require a detailed business plan or property projections. This includes revenue forecasts, expense estimates, and a strategy for achieving profitability.

5. Environmental Assessment

Depending on the property type and location, lenders may require an environmental assessment to identify any potential contamination issues that could affect the property’s value or pose liability risks.

6. Legal Due Diligence

Lenders may conduct legal due diligence to ensure there are no outstanding liens, legal disputes, or title issues associated with the property.

7. Insurance Requirements and Personal Guarantees

Borrowers typically need to secure property insurance and may also be required to obtain liability insurance and other types of coverage. In some cases, lenders may require personal guarantees from the borrower or guarantors, especially for smaller businesses or loans with higher risk profiles.

These are some of the key requirements that lenders consider when evaluating commercial real estate loan applications. Keep in mind that specific requirements can vary depending on the lender, the type of property, and the borrower’s financial situation. 

It’s essential to work closely with a knowledgeable lender or financial advisor to navigate the loan application process successfully.

Key Takeaway: Securing commercial financing needs a well-thought-out plan and readiness. You’ve got to make a choice – go solo or seek help from a broker. Get your paperwork in order, keep those credit scores high, and make sure your business is cash-flow positive. And don’t forget – lenders usually ask for 25% down payment upfront; having this ready could increase your approval odds.

How Do I Get approved for a Commercial Financing: Key Considerations for Approval

Your journey to get approved for commercial financing isn’t just about filling out forms. There are other considerations to think about. 

First, the kind of real estate you’re buying matters to lenders. Are you planning on getting an office building or retail space? Or maybe a warehouse or industrial property? 

These are all different flavors in the eyes of your lender and they will evaluate accordingly.

Second, there’s loan terms and repayment options. These can vary based on what you’re making (and your credit score). Loan terms usually span from five to ten years, yet amortization periods can stretch up to twenty-five years. 

Just remember, longer amortizations mean lower monthly payments but more interest paid over time.

Prepayment Penalties 

Prepayment penalties can be devastating to your business if you don’t handle it correctly. Some loans have clauses that penalize borrowers who pay off their debt early. Be sure this is clear upfront so there aren’t any unpleasant surprises later down the line.

Financial Records

Lenders want proof that your business can generate enough cash flow to cover loan payments and still operate comfortably. Therefore, maintaining accurate financial records is crucial. 

Keep track of income statements, balance sheets, and cash flow statements as these give lenders an insight into your business’ profitability and stability over time.

The Importance of a Good Credit Score

If you have a credit score less than 680, you need to wait before you apply. Your chances of approval are not good. If this is you, look at your credit report and make efforts to pay down your high interest debt. 

Make extra payments (if possible) to pay off credit cards or current loans. The less current debt you have, the better your chances of getting approval. And whether you wind up paying ridiculous interest rates. 

Key Takeaway: Securing commercial financing approval is like cooking a gourmet meal – every detail matters. The main ingredients are your property type, loan terms, and understanding of prepayment penalties. Remember that amortization periods can stretch to 25 years – this impacts your repayment structure significantly.

It’s all about getting the perfect mix for a successfully approved loan. Make sure your credit score is above 680 before you apply.

how do i get approved for a commercial financing

FAQs in Relation to How Do I Get approved for a Commercial Financing

What kind of credit score do you need for a commercial loan?

You’ll typically need a credit score above 680 to qualify for most commercial loans.

Are commercial loans difficult?

The complexity of securing a commercial loan depends on your financial situation, the property type, and the lender’s criteria. Good preparation can make it smoother.

What do banks look for in commercial loans?

Banks usually examine factors like your business’s cash flow, credit history, debt-service coverage ratio, and the value of the property you’re financing.

How does commercial finance work?

In short: lenders give businesses money to buy or improve properties. The business pays back with interest over an agreed period. Different types have different terms and requirements.


Knowledge reduces anxiety, particularly when it comes to commercial financing. You’ve discovered the different types of loans available, from SBA and conventional loans to hard money options.

You also learned about key factors lenders consider like credit scores, cash flow analysis, and debt-service coverage ratio. Remember, it’s not just about meeting minimum requirements but presenting a solid business case too.

Property type, repayment terms, and amortization period all play vital roles in approval success. Keep building that strong credit history. Maintain accurate financial records – they are your silent advocates.

Now you know the answer to the question how do I get approved for commercial financing? Use this knowledge wisely. Don’t skip anything. 

And when you’re ready, visit eFunder Capital. We have the education, financing, and experience you need to make your investment dreams a reality. 

Take the first step towards transforming your real estate dreams into reality with eFunder. Click here to schedule a personalized consultation and discover how we can help you secure the optimal financing for your next investment venture. Let’s build your success story together!

Additionally, don’t miss out on our exclusive offer – a 30-day free trial from Realeflow, specifically tailored for ambitious investors like you. Click here to seize this opportunity and elevate your investment strategies.

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Picture of Terence Young
Terence Young

Founder of eFunder

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