Loan Approval Tips
You've asked yourself the tough questions about buying a property. The pros have outweighed the cons and it's time to find a property. Before you even start looking for a commercial broker to locate the ideal property for your company, you need to determine the financing. The worst-case scenario is that you spend significant time looking for property, make the offer, have it accepted, and then get declined for financing. That is an ugly deal for all parties involved.
The best scenario is to gain approval on your financing prior to even starting the search. You may have an existing relationship with a commercial bank or you may contact ZANA Network's Financing partners (click here) to begin the process. Based on the assets you have to work with for the down payment on the building, you need to determine what type on financing terms you could obtain on the loan. The significant terms you will need to know are:
- What is the maximum loan amount for which you can be approved based on your down payment?
- What is the approximate interest rate for the loan, and is it a fixed-rate loan?
- What is the maximum number of years you will have to repay the loan?
- Do any prepayment penalties apply?
- Can you defer any payments?
- What is the minimum down payment available?
You need to answer all of these questions in order to calculate an estimated payment amount each month. There may also be property taxes, dependent on the location, due yearly. This should be investigated with the local city taxing authority. Finally the last part of the payment is the insurance that must be purchased to cover the building. The bank will insist that the insurance covers at least the amount of their loan.
These three figures-mortgage payment, property tax, and insurance-will make up your monthly expenses for the building. This is the time to speak with your accountant and confirm that this expense will not inhibit your running the company. As the saying goes, "cash is King" and when a company doesn't have it, it usually means death.
Once you have your accountant's approval, you need your banker's approval. No, you haven't located a building yet! But you want to make sure that when you do locate the building, you know the financing will be the least of your concerns. Your lender can give you a tentative approval subject to the property. The loan will have approval as long as the property meets the requirements of the bank. They will consider items such as:
- Appraised value
- Condition of the property
- Correct zoning for your intended use
- Location
Finally, it's time to contact your commercial broker. Your tentative approval for a loan should allow you to concentrate on the property. You want to focus on the needs of your company just as you did when you first leased a property.
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