Are you Ready to Finance Your Property?
You’re buying a building, or ready to build, or refinancing an asset, but are you Ready to Finance Your Property?
I recently posted on the importance of securing the right lender for your project. One that is familiar with your asset type, is actively lending in your community, and offers competitive terms and conditions. Finding the right financing is all about finding the right lender, but are you prepared?
Loan Underwriting is about underwriting both the property and the prospective borrower. Understanding the commercial loan approval process will provide you with a considerable advantage when it comes to securing your financing. The lender has to develop comfort that the property has, or will have sufficient income to comfortably service the debt, and have a value (now, or upon completion) which will ensure loan-to-value limitations are met. Your lender will also want to know that you have the financial capacity, and ideally the experience to manage or develop the property (or can direct those who do) so as to maximize its value.
Obstacles to securing competitive financing often include the following:
You’re just not ready.
There are unresolved property issues, typically in a new acquisition or to-be-built situation. Zoning compliance issues, environmental concerns, lack of 3rd party independent due diligence reporting, and market analysis/appraisal reporting.
You’re biting off more than you can chew.
Real Estate investors, on the whole, tend to be optimistic and entrepreneurial, and that’s great. A lender wants assurance however that your plans are within your financial means. Do you have sufficient creditworthiness or financial resources to meet lender requirements, i.e. can you fund the inevitable shortfalls which often accompany development?
Are your timelines realistic?
You have a closing in 3 weeks, and you’re just headed off to meet your lender. How realistic is that? You need to plan ahead and provide yourself sufficient time to canvass several lenders, obtain the required 3rd party due diligence reporting, and leave enough time for lender underwriting and approvals. Always assume it will take longer than it should, as it often does!
Are your expectations realistic?
Be realistic about your expectations. Securing a full loan at the keenest market rate available, may not be possible if your security is not “A” class, and your financial and business capabilities are unproven or less than stellar. The loan terms you will receive are typically “risk adjusted” for a variety of items that lenders assess.
What’s the takeaway here? Plan ahead, leave yourself sufficient time, and consider preparing a complete loan presentation package for your lender. Anticipate your lender’s concerns, look at your lending opportunity realistically, you’ll be better placed to secure the financing you require. Only then are you truly Ready to Finance your Property.