As a small business, you may seek funds to cover renovations, an investment property, or look for commercial real estate loans. Lack of capital can be common for a small business. According to statistics, thirty-three percent of new businesses fail because of a lack of funds.
In 2020, 43% of small businesses applied for loans with 20% receiving a denial due to credit issues. The business location affects the likelihood of receiving a loan, with 51% of businesses in rural areas obtaining loans. Only 38% of businesses in urban areas receive funding.
It’s important for small businesses to know how to obtain funding. Here we outline the best business loans in Oklahoma, and how Triad Bank may be able to help business owners successfully reach for the stars.
Commercial mortgages are loans allowing business owners to obtain funds for purchasing property or land for their company. The specifics are similar to a home mortgage.
The funds from the lender are repaid by the businesses making monthly payments. These payments include the principal, interest, and any other requirements including taxes and insurance.
When trying to grow your business, you have different types of loans available to you. You need to understand the difference between the mortgage loan term and the amortization schedule.
The loan term is the time the borrower has to repay the loan. A loan term on a commercial real estate loan is usually 5-30 years. The majority fall within the 5-10 year range.
This is a loan for property on which the owner occupies at least 50% of the land. The occupancy may be for offices, industrial/warehouse, self-storage, healthcare purposes, retail, hospitality, or mixed-use.
The loan is financed with the intent of revenue the business generates, along with its collective assets, serving as collateral for the loan. This is seen as a more secure type of property to finance.
The borrower has their own business on the line when requesting a loan for this type of commercial property, making it more attractive to lenders. Owner Occupied Commercial Mortgages are usually available with a wide range of financing options.
An investment property mortgage uses the property as primary collateral on the loan. With this type of loan, the business uses lease payments from third parties renting property for residency or business as a source of revenue. An investment property may include property in use for industrial/warehouse, self-storage, healthcare, hospitality, office, retail, or mixed-use.
Lenders consider investment property mortgages a riskier loan and may require a down payment of 20% to 35%.
You can obtain an SBA loan for a rental commercial property by completing an SBA 504 loan application. The money from this type of loan may be used for building, rehabilitation of a building, or financing ground-up construction.
Loans for investment properties include purchase, rehab, and construction. They can be office towers, apartment buildings, etc.
For those who own a newer business, applying for a loan backed by the Small Business Administration (SBA) can be an option with better chances of approval than some other options. When applying for an SBA loan, the business owner will need to complete a Statement of Personal History, SBA Form 912.
This form is a way the SBA evaluates your credit eligibility and character but not every lender requires you to complete this form when applying for an SBA loan. To get the SBA’s best loan with popular options, the form is required.
In addition to the business owner, other people within a company may need to complete the form, including:
Personal information required with the form may include citizenship, social security number, and lender’s information.
The form makes inquiries into any criminal history you have. This includes criminal charges that may be pending, if there’s been an arrest in the past six months, and if the applicant has ever been convicted or pleaded guilty/no contest to a crime. It will ask if the applicant has been on parole or pretrial diversion.
It is important to be honest. If the lender determines false information has been provided on the application, a denial can be expected.
When seeking a loan for commercial real estate, your lender will evaluate the level of risk. They look at the five C’s of credit: character, capital, collateral, capacity, and condition.
Character is the trustworthiness and credit history of the borrower. Lenders review the business credit history to decide if it shows an overall positive financial performance.
The credit history indicates the success of the business. This determines whether a loan for commercial property is a good investment. It also shows if the borrower is reliable and able to support new debt.
The lender will review the business's financial records. This helps them decide what resources the business has to cover their debt. This is important in case there are unforeseen changes within the business that affect its finances.
For an owner-occupied commercial real estate loan, the business must use the property as collateral. The lender will appraise the property to ensure adequate value exists in the event the business defaults on the loan.
The lender will review the business’ ability to repay the loan by examining the company’s cash flow. They will determine whether the business can cover the new loan in addition to any existing expenses.
Before approving a loan the lender will consider environmental factors. This impacts whether the commercial property is a good investment. They will examine the industry the property is being used for and its future potential.
Factors given consideration include whether the industry is experiencing growth, has been negatively impacted by the environment or any other potential risks that could impact the ability of the borrower to repay the loan.
One of the best ways to grow your business is by obtaining commercial real estate loans to allow for expansion. At Triad Bank, we offer innovative banking to all Oklahoma communities.
Equip your business for growth today by applying for a loan that gives you the capital you need to expand your inventory, purchase real estate, and more.