The good news: According to the Mortgage Bankers Association, commercial mortgage originations were up 25% in the second quarter of 2012 from second quarter 2011 levels and up 39% from the first quarter of 2012.
The bad news: “Currently, money is still tight for commercial loans,” according to Thayer Morgan, vice president of CENTURY 21 Commonwealth Commercial in Watertown, Mass.
Unless you have access to a lot of cash, you’ll need a commercial mortgage to finance your next office, retail, industrial or multifamily project. And if you haven’t applied for one in a few years, you’re likely to find that the rules have changed.
“There are a limited number of opportunities for people looking for financing,” said Greg Olivier, chief risk officer for First Southern Bank in Boca Raton, Fla. “Banks are underwriting according to old-fashioned Banking 101 standards. But if your transaction meets those standards, you’re going to have everybody chasing your deal.”
So what can you do to increase your chances of getting a commercial loan?
- Start early; banking is a relationship business. The more a banker knows you and your business, the better he or she can guide you.
- Clean up your credit, and free up cash. “Lenders are looking for investors with plenty of skin in the game—30, 40 and sometimes 50 percent down,” Morgan said. If you’re new to investing, create a business plan that convinces the bank that your deal will succeed.
- Make sure the deal makes sense. Banks want to know that the property has enough cash flow to cover debt payments.
- Provide the bank with as much information on your business and the project as possible so that they can do the due diligence.
- Work with an experienced commercial broker who can help guide you through the financing process.