Commercial Loan Requirements
Commercial loans are loans used for a specific business purpose. They're often used to buy commercial land, which is zoned differently from residential areas and can be used for office buildings or stores. Businesses may want commercial loans to help purchase important assets, acquire smaller companies or simply get started. Lenders who offer commercial loans have various requirements for organizations or individual who are interested in applying.
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Property Equity
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Property equity is a measure of the essential value of a piece of land, including all structures, and is a vital factor in commercial property loans. Lenders immediately look at current market conditions and the history of the property to find out how much it's worth. As lenders require this property as collateral for the loan, they want the value to be close to the amount of the loan in case they need to recoup their losses.
Income
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Income is another vital factor when a business is trying to get a commercial loan. Income statements show the lender how much money the business brings in, illustrating that the business can afford to make payments on the loan. Lenders often ask for income statements or tax returns going back three years so they can better judge the growth and stability of the business.
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Other Financial Information
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In addition to asking for income statements, lenders also ask for profit-and-loss statements and pro forma reports that show the condition of the property or project that the business is interested in. This helps show the lender if the business venture is likely to be a success or not. The lender also requires recent appraisals --- these help with property equity --- and detailed descriptions of the property to make their decisions.
Business Savvy
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Business savvy is a more intangible requirement for commercial loans but is still important to all lenders. Lenders want assurance that the business or owner knows what he's doing. If the business is starting a new project, lenders require a detailed business plan including not only the necessary financial statements but also ideas that are reasonable and show that the business has experience in this area.
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