Learn the Ins & Outs of Commercial Lending to Better Understand Your Next Steps
If you’re expanding your small business, you may be wondering: “Where will I get the funding for it?” Although personal finances and partners can put up some of the capital, much of the financing may come from a loan. Here AVANA CUSO, a financial institution specializing in commercial real estate lending, offers insight into what commercial lending is, how it works, and the various types of commercial real estate lending available.
What is Commercial Lending?
Commercial lending involves borrowing money from commercial lenders to pay for various business expenses, such as purchasing land or buildings, renovating or expanding, or buying related equipment. For instance, if you’re interested in opening a new Italian pizzeria, you’ll need to secure funding to purchase commercial property such as a building that previously housed a restaurant or a vacant lot. Then, you’ll need to build or renovate a building, and purchase kitchen equipment such as stoves, pizza ovens, seating, and decor.
What are Commercial Mortgage Lenders?
Commercial mortgage lenders back the funding of commercial loans and provide you with the up-front capital to grow your business. Commercial mortgage lenders can be credit unions, banks, asset-backed trusts, government-sponsored entities and private financial institutions.
How to Get a Commercial Loan
Securing a commercial loan involves these five steps.
- The Pre-Approval/Qualifying Process. Your chosen lender will evaluate your personal and business financial history, available lines of credit, debt service coverage ratio, the purpose of the loan, credit approval and several other factors.
- Submitting a Loan Application. Once you’ve been pre-approved, it’s time to submit a formal loan application. You’ll need to include financial statements, as well as income and tax documents from the last three years.
- The Lender Reviews Your Application. A loan officer will further analyze credit history, personal and business collateral, projected business income and other financial documents.
- The Underwriting Process. The loan officer passes the application to the underwriting team, who evaluates and decides to approve or decline the loan.
- Decision. You’ll receive a decision on whether the underwriting team decided to approve or decline your loan. If approved, they will include information about the interest rate, loan terms, loan to value ratio, monthly payments and closing date.
4 Types of Commercial Real Estate Lending
Commercial real estate loans are popular products to which entrepreneurs look when they need a brick and mortar for an office space, storefront, production site and more. There are four major types of commercial real estate lending available:
- Traditional/Term Loans: This financing option is similar to that of a residential mortgage, except that it offers shorter terms.
- Small Business Administration (SBA) Loans: Both the SBA 504 loan and SBA 7(a) loan are financing options backed by the SBA.
- Bridge Loans: These short-term lending options can be used for business owners who are waiting for long-term financing.
- Construction Loans: Construct new structures or renovate old ones with construction loans.
AVANA CUSO offers a variety of these commercial real estate lending products, including commercial real estate loans, SBA 504 loans and conventional construction loans.
What are the Typical Commercial Lending Rates?
Commercial lending rates vary based on the type of loan you choose, the lender, your financial qualifications and credit score, the type of project you’re looking to finance and the market. Commercial real estate loan rates can range from 2.2% to north of 18%. AVANA CUSO offers competitive rates starting at 4.00% and can provide funding for projects up to $25 million.
About AVANA CUSO
Established in 1998 and headquartered in Simi Valley, CA, AVANA CUSO offers competitive and collaborative commercial lending options. We partner with credit unions and connect them to investors across the United States. Additionally, we uniquely support and guide our partners through the entire full lifecycle of the loans from application to approval, supporting credit unions and borrowers through the complex process. AVANA CUSO is a proud member of the AVANA Family of Companies.