Navigating the Path to Approval: Qualifying and Applying for a Commercial Real Estate Loan

Seeking a commercial real estate loan is a likely first step when buying a new business property or renovating an existing one. Knowing where to turn and how to begin the process can feel overwhelming for those new to commercial real estate lending. The good news is a number of commercial real estate financing options exist for investors, owners, and builders, especially with private lenders.

Navigating the Path to Approval: Qualifying and Applying for a Commercial Real Estate Loan

With traditional banks risk adverse to commercial real estate lending due to economic volatility and several high-profile regional bank closures in 2023, private lenders, like Enact Partners, are a popular option for builders and real estate investors.

Let’s explore some of the basics of obtaining a commercial real estate loan from a private lender and what you might expect during the process. 

Commercial Real Estate Focus

Many private lenders specialize in funding commercial real estate ventures. Their focus primarily centers on business purpose loans for real estate projects. Unlike loans meant for homeowners, these commercial property loans are designed exclusively to cater to the dynamic needs of entrepreneurs, developers, and commercial real estate investors.

For example, Enact Partners provides capital ONLY for business purpose loans. Enact Partners also has decades of collective experience in commercial real estate lending and commercial real estate development. This allows them to put their deep knowledge and expertise to work for our clients, quickly making sense of borrower collateral, needs, and goals to design lending solutions that work for all parties. The result is unmatched expediency and transparency.

How Do Commercial Real Estate Lenders Operate?

Private lenders follow different rules compared to traditional banks. They are not regulated by government agencies such as the Federal Reserve, FDIC, or Consumer Financial Protection Bureau, so their processes tend to have a lot less red tape.

For example, Enact Partners’ streamlined processes and accessible team mean borrowers get to work directly with them, the decision makers, not a nameless, faceless loan bureaucracy beholden to regulations and paperwork.

While interest rates and associated fees may be higher with private commercial real estate loans, private lenders are more flexible and much faster than banks. This can add value that may far exceed a relatively small interest rate difference. For many short-term loans, the overall cost is generally not that much different than a bank loan.

Also, interest rates from private lenders are not directly affected by the Fed’s interest rate actions, nor are private lenders as affected by macroeconomic trends as banks often are. To illustrate, during recent economic and banking volatility, Enact Partners kept lending on commercial real estate loans while many banks stopped.

What Makes Borrowers Attractive to Private Lenders

Borrowers often come to private lenders when they don’t check all the boxes standard lending institutions and banks require. To get things done, they rely on private lenders to offer creative, hassle-free solutions.

The goal of private lenders like Enact Partners is to fund borrower projects and for those projects to be successful. By crafting innovative funding solutions tailored to borrower and project needs, private lenders act more like partners, not opponents. Sometimes during the loan approval process, borrowers even realize additional opportunities for success.

Commercial real estate borrowers also like to move quickly to seize business opportunities when they arise. Most have already engaged in numerous real estate projects over the years. They know how complicated and slow working with traditional lenders can be.

Generally, private lenders look at a minimum of four key factors when making lending decisions:

  • Can the borrower make the monthly loan payments?

Aside from borrower creditworthiness and financial strength, private lenders look at whether a property’s net operating income is enough to cover the loan payments.

  • Can the borrower pay off the loan at maturity?

Private lenders also assess whether the borrower’s business plan adds enough cash flow and/or value to the property so the borrower can either sell it for a profit or obtain a cheaper conventional loan to pay off the loan.

  • Can the borrower make it through project delays or cost overruns?

The borrower’s ability to complete a project despite delays and/or cost overruns is a critical decision point. Borrower experience, personal liquidity, and reputation are important factors.

  • Can the lender negotiate an appropriate interest rate?

When pricing loans, private lenders look at whether borrowers are able to pay interest rates commensurate to an appropriate risk-adjusted return on the project. For example, a fully-occupied apartment building tends to be a safer lending opportunity than a plot of vacant land that does not have income.

What is Applying for a Commercial Property Loan Like?

Borrowers who decide to work with a private lender for a commercial real estate loan should expect to provide much of the same information they would provide to a bank. This includes a description of the project, any relevant financials or assessments, a business plan, desired terms/repayment schedule, value of any collateral or personal liquidity, and intended use of the funds.

Establish Loan Objectives—Borrowers need to define the specific purpose of the commercial real estate loan. This includes the amount needed, the intended property type (such as office space, retail, or industrial), the type of project (acquisition, renovation), and the expected return on investment.

Research Lenders—Borrowers should explore various private lenders to identify those who specialize in the type of loan being sought. For example, some private lenders like Enact Partners specialize only in business-purpose loans for commercial real estate projects. Other factors to consider are lender reputation, terms, interest rates, and flexibility.

Gather Financial Documents—Like any loan, documentation is vital. For commercial real estate loans, necessary documentation includes business financial statements, bank statements, tax returns, P&L statements, business plans, appraisals, leases, construction plans, and any other relevant borrower commitments or obligations.

Understand Lending Criteria—Lender loan eligibility requirements often consider factors such as credit scores, business stability, and the property location, condition, and potential income generation.

Understand Loan Options—Loan options and terms with lenders often vary, this includes interest rates, repayment schedules, loan duration, and even loan type (aligned with property type). For example, Enact Partners provides short-term loans for horizontal construction, vertical construction, property acquisition, bridge lending, and fix & flip for single- and multi-family land and residential properties, commercial land, office, retail, industrial, hospitality, short-term vacation rentals, and agricultural land.

Length of Approval Process—Private lenders offer quicker approvals than traditional lenders, providing borrowers a significant advantage in competitive markets or when faced with urgent financing needs. For example, Enact Partners typically closes on its loans within 7 to 45 days.

Your Commercial Real Estate Lending Partner

Enact Partners is a reliable private lending partner for borrowers seeking capital for commercial real estate projects. With an extensive background in commercial real estate development and investment, Enact Partners knows how important fast, flexible access to capital is for commercial real estate opportunities. They are often the ideal lending partner for borrowers seeking creative lending solutions and out-of-the box thinking.

Contact us about your commercial real estate borrowing needs:

(760) 516-7776 | [email protected] |

The content of this blog is intended for informational purposes only. All information is provided “as is.” No representations are made that the content is error-free. None of the information is intended to be a source of advice with respect to the material presented, topics discussed, websites linked to, and/or other information referenced or displayed. Any and all ideas and strategies presented should never be used by anyone without that person assessing his or her own financial, investment, and borrowing needs, and without consulting a lending professional of financial advisor familiar with the person’s unique financial situation and needs.

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