If you cannot ensure that you have the financing to purchase a piece of commercial real estate, your closing could be in trouble. You might have to wait longer than you intend to take possession of your new acquisition, or you might lose out on the property entirely.
When you approach a lender to get a mortgage for your new business property, you should know how to present yourself as financially reliable and able to pay back the loan.
Your business credit score
Just like buying a personal home, you should be ready to show your personal credit score to your lender, as it shows you have a history of borrowing and paying off debt. However, if you want a property for your business, your lender will likely want to see your business credit score.
According to Forbes, a business can possess a credit score of its own. A business score in the 200s range is usually persuasive enough to convince a financier, though lenders can have their individual standards for approval.
Your business DSCR
Lenders generally do not want to approve commercial loans if a business cannot generate enough income to service a mortgage. One way banks screen for unreliable companies is to examine the debt service coverage ratio of the business.
You figure out a DSCR by dividing the annual net operating income of your company by its yearly debt payments. A higher DSCR can boost your odds of winning loan approval.
Your personal guarantee
People who buy a personal residence generally only have to put up the purchased property as collateral. For a commercial property loan, this might not be enough. A lender could require you to personally guarantee that you will pay a missed loan amount if your business cannot supply the money and if liquidating the property does not fully pay off the balance.
Since buying a commercial property is not the same as obtaining a house to live in, understanding how to navigate the financing issues can help you avoid unnecessary delays in closing.