Commercial Mortgage Loans 101: What Are Lenders Looking For

A commercial mortgage loan is a type of financing provided to a property owner using their real estate as collateral. These loans are typically used to purchase real estate, refinance existing mortgages, or bridge the gap between the purchase and sale of real estate. 

They are typically long-term loans with repayment terms ranging from 10 – 30 years. 

That said, obtaining a commercial mortgage loan can be daunting, especially if you’re not sure what commercial mortgage lenders are looking for. 

The good news is that lenders are typically looking for the same essential criteria when it comes to approving applications for commercial mortgages. They want to make sure that borrowers can repay the loan, have collateral to back up the loan, and have a good credit history. 

Knowing what these criteria are and how to meet them can help make the process of obtaining a loan much smoother.

Here’s an in-depth breakdown of the criteria lenders look for in loan applicants. 

Ability to Repay the Loan

If you’re obtaining a commercial mortgage loan, lenders want to make sure that you can repay the loan. They are going to want to see that you have the income record of being able to repay the loan. 

The amount of the loan and the length of the loan will be determined by your current income, your ability to repay the loan, and your credit history. 

Lenders typically follow certain guidelines when determining your ability to repay the loan. They will want to see monthly cash flow numbers and projections showing you can repay the loan. They may also want to see some reserves in the event something happens to your primary source of income.

They don’t want to approve you for a loan and then have you come back to them a year later saying that you lost your job and can’t pay the loan.

Collateral to Back Up the Loan

Another important criterion that commercial mortgage lenders are looking for is collateral to back up the loan. 

A commercial real estate loan is typically secured by a lien on your purchasing property. The lender will use the equity in the property to back up the loan. Lenders specializing in these types of loans typically require a larger down payment and higher interest rates than a conventional mortgage lender.

Good Credit History

Another criterion that commercial mortgage lenders are looking for is a good credit history. 

Having a good credit rating is important for obtaining all types of loans, including commercial mortgages. If you’re obtaining a loan and don’t have a credit history or if you have a poor credit history, you may have a difficult time obtaining a loan. 

It’s essential to get your credit history in order and make sure it’s as clean as possible. You can do this by paying off any outstanding loans you have, not applying for any new loans, and making sure you pay your bills on time. 

A combination of these efforts will help build your credit history and show lenders that you can manage your credit responsibly.

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The Bottom Line: How to Meet Commercial Mortgage Loan Criteria

Now that you know what commercial mortgage lenders are looking for, you can start to meet their criteria. To do so, you’ll need to have a good credit history and sufficient income. You’ll also want to ensure that you have enough cash to cover the down payment and closing costs associated with obtaining the loan. 

You want to make sure that you meet all of the lender’s requirements and that you can provide them with all of the documentation they need to approve the loan.