The Karlin Law Firm LLP - Business Law Attorney

Providing quality legal services to statewide and national clients in ADA defense, Personal Injury, business and real estate for more than 35 years

Providing quality legal services to statewide and national clients in ADA defense, Personal Injury, business and real estate for more than 35 years

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Essential elements for securing a commercial real estate loan

Many investors have used real estate to build fortunes in California, but financing a real estate opportunity can be challenging. From a banker’s perspective, the aspirations an investor might have for a property mean little compared to the financial nuts and bolts of building the deal.

When considering a loan for a property, a lender will begin by studying the applicant’s credit score. Most people have some sort of blemish on their financial history, such as late payments or a charge off. Two or more late payments, especially on balances that were 90 days overdue, will likely prompt a lender to deny a loan.

An aspiring borrower will also need to show that a property will generate sufficient net operating income to support the enterprise. A lender will expect someone to have enough cash on hand to maintain an office, apartment building or warehouse as low or nonexistent cash reserves will not inspire a lender’s confidence. A hopeful investor might try to gain a loan based on the potential of a property after it is remodeled, but lenders want to base loans on the borrower’s immediate ability to make payments.

A person experiencing barriers regarding financing might overcome challenges with backing from a guarantor with strong financials, a lengthy history of successful business operation or a relationship with the lender. Someone working toward financing a commercial property could consult a lawyer about developing the agreements between investors and lenders. A lawyer could assist during negotiations with the involved parties and provide advice to the person to prevent unexpected liabilities. A lawyer could also review disclosures about the property to help the buyer perform due diligence and gain confidence about the value of the real estate.

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