Using Real Estate Financing to Fund a Small Business

If you’re hoping to finance the growth of your small business, you might want to consider using real estate as collateral. Using commercial real estate financing can put money into your business when you need it the most. Real estate loans have been around for a long time. In fact, most lenders would rather offer a small business loan to someone who has real estate to back them up.  Here is what you need to know about using real estate financing.

Cash Flow

If you want a real estate loan, then you need to be able to demonstrate that you have adequate cash flow. After all, you need to prove that you can support the real estate loan. While real estate makes for good collateral, a lender doesn’t want to have to seize your property. The lender would rather receive the money that you agreed to pay. Therefore, you’re going to have to prove that you have available cash ready. Cash flow is among one of the most important pieces.

Collateral

Nowadays, when you apply for a loan, your loan-to-value ratio will be about 60 percent. Now, you can always be approved for something higher, but you will have to have strong credit and revenue. Make sure that you track your business and have enough documentation to prove that you have high revenue and that your business can afford the loan. If you are purchasing commercial real estate, you may have to put more down than you have in the past. In fact, you may need about 40 percent.

Credit Rating

Credit ratings matter. Whenever you need a business loan of any kind, the lender will look at your credit rating. While different lenders accept different credit scores, you do need to prove that you can handle the loan. Your credit rating should be high, but it’s not the most important piece. If you have a weaker credit rating but strong revenue and a good track record, then you may end up with approval.

If you plan to use commercial real estate as your collateral for a small business loan, then this could be a great way to finance your company and to watch it grow. If you have a strong business plan, good credit, and the collateral to back the loan, then you shouldn’t have any trouble receiving financing. People use real estate for financing all of the time and it leads to success.

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