Increase Your Chances For Obtaining Financing

Too often we see commercial loan applicants that are ill prepared to obtain financing for their project.  The following is a brief discussion of key areas that will increase your chances of obtaining funding.  It  is not meant to be comprehensive, but it serves as a general guide that will help you be more successful in your effort to obtain the funds you need for your commercial project.

Credit Score – While having poor credit will not rule you out from obtaining funding, having poor credit limits the type of lenders that will entertain your application (mainly hard money and bridge lenders). 

There are things you can do to prepare for financing and improve your credit score.  First) Eliminate too many revolving credit accounts.  Second) Pay loans on time or early.  Third) Do not shop your loan to too many lenders, each review of your credit report (except if you pull the credit report yourself) counts against your score.  Fourth) Dispute incorrect derrogatories on your account.  Fifth) If you have a ligitimate derrogatory on your account provide a letter to the reporting bureau explaining the situation, such as a medical situation that resulted in loss of work or time away from work that resulted in several late pays.

Exit Strategy/Repayment – All lenders want to see a well defined exit strategy or repayment plan.  This is one area you will want to spend considerable preparation and home work prior to applying for funding.  If a lender sees you are professional in your approach to the project, it will increase your chances of funding, even if you have less than perfect credit.  Be accurate and thorough in your analysis and explanation of budgets and forecasts.  A mistake here will kill your deal before it starts.

Equity– In todays credit market lenders are looking for projects that have significant equity in the project.  Significant equity is considered on a case-by-case basis, depending on the type and nature of the project and can range from 10% t0 60%.  So, the more equity you can put in to the project, the better.  If you do not have sufficient equity into the current project, consider cross-collaterizing the project with other commercial property you own.

Lender Criteria – Before you ever fill out an application with a lender do a little research on the lender and find out what types of projects they prefer funding, as well as other lending criteria.  Look at some of the projects they have recently funded.  Lenders sometimes will change their basic criteria as market conditions change, so stay abreast of these changes.  This is an essential step, do not wast your time or the lender’s time if your project does not meet their underwriting criteria.

Package Preparation –  Now that you know what the lender’s criteria is you can begin compiling and preparing a loan package that will satisfy their underwriting and due diligence review. 

During this step do not try and hide negative aspects of the project or your own credit worthiness!  It is far better to deal with negative aspects of the project or personal credit up front and offer solutions to the situation than to have the lender and broker discover them during due diligence. 

Be very thorough and complete in your package preparation it will save you a lot of time and increase your chances of getting the funding you are seeking.