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Obtaining a commercial building loan from a private lender is often easier than trying traditional funding institutions. The approval process is usually not as in depth, and the emphasis can be more on the quality of the property and related loan-to-value exposure instead of your financial and general creditworthiness. There are some drawbacks when you use a private lender for your commercial building loan. The rate may not be as low as a standard lender could offer, and the private lender may ask for regular updates on how your business is performing. However, if you are unable to use a traditional lender for your building loan, a private lender can be a viable alternative.
Finding a Private Lender
If you have applied at a commercial bank and been denied credit, ask them if they have any clients who are private lenders. Depending on your location, there might not be many private lenders that provide commercial funding, and a large institution like a commercial bank may know whether any are available.
Some other ways to find a private lender can be from contacts you have in the business community, commercial mortgage brokers, or by checking online.
Meeting with a Private Lender
Once you have located a private lender and they have agreed to entertain your building loan request, prepare all the necessary documents you will need for your presentation. You should be detailed in your documentation, listing the reasons for your acquisition of the commercial property, and how you intend to structure your business to make the purchase profitable.
Gather your financial statements, business plan, tax returns and any other supporting information that will make the application process flow smoothly. Your goal is to make the private lender feel safe lending you the money for your building loan, and you want to obtain the money as quickly as possible. Since a private lender may not be as critical as a commercial banker when evaluating your request, do not bombard them with every miniscule detail about your business. If they require any additional information, they will ask you for it.
Evaluating the Loan Terms
Once the private lender has approved your loan request, if there are any conditions to the approval you will have to determine if your business can operate the way you want it to if these conditions are met. For example, if a private lender grants you an approval but requires an extra 10 percent be put down on the commercial building, that added expenditure may be too much of a burden on your cash position.
If you have no other lending source to use for your funding, you may have to adjust the way you run your company in order to make the acquisition you need to grow your business. You can always consult a tax attorney or your accountant for help in analyzing the private lender’s loan. They may have some ideas about how to modify the way your business operates, which can then make the loan viable.
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