How hard are commercial loans to acquire?

[Ruslan Kotelyanets]

I heard that commercial loans are a challenge to get, I was wondering if this is true. I read and researched that the property needs to make good money in order for the bank to approve you. Do you also need assets for commercial loans? I spoke with a commercial lender and he already said he could get me financed for 80% for a property. Just need some insight.

[Erik W.]

@Ruslan Kotelyanets, hi and welcome.  As with all things "it depends."

Yes, you will have to show you are trustworthy to get a loan.  In some ways, commercial is easier because banks are making the loans out of their own portfolio.  They can be creative, flexible, and don't have to toe the line on many of the regulations surrounding Govt-backed loans.

That said, the banks also have the most to lose if the loan goes bad because if you fail to pay, there is no Govt "safety / insurance" backing up the loan.  They will have to foreclose on you and garnishee your wages/income/bank account.

To qualify, you should be prepared to give them the following:

1) Personal financial statement (PFS, pronounced "piffs").  This will list you income, debts, and all assets including home(s), vehicle(s), stocks, and other investments.

2) Tax returns for at least the past 2 years.  Some lenders may want 3+ years.

3) Credit report.  Because you will be guaranteeing the loan personally for a standard commercial loan, and lender will want to see if you are good and paying back money on a fixed installment basis.  If you own your home, it is likely that will be a key component.  If you rent, they may be satisfied with documentation from your land lord showing at least 2 years of on-time rent payments.

There are some kinds of "commercial" loans that are much larger on things like apartment buildings.  They usually start at over $1 million and come with even more strict requirements.  In these cases, if you credit or personal net worth is low, you may be able to find partners who have good credit and assets to help back the loan.  But keep in mind people with money and assets are generally very conservative and want to be sure you know your stuff 100% and the deal is a slam dunk before they'll hand over their hard-earned cash to a newbie who has never done a deal.

It's hard to know for sure what you're doing though.  Provide more detail in terms of what value you will be bringing to the table and what your goals are, and then we can be more helpful.