Accurate Space Requirements:
Carefully study your real estate needs. When budgeting, it’s
important to consider not just the purchase price (or if leasing—the base
rent), but also any additional costs associated with the property. It is easy
to overlook or underestimate extras such as: renovations, due diligence costs,
legal fees, production downtime during the transition, recurring operational
expenses for the property and (in the case of a lease) possible leasehold
improvements. The lender wants to see evidence of solid planning. Determining
whether you want to buy or lease
and how you’ll accommodate projected growth is important in determining your square footage needs.
The Subject Property:
If you don’t already have a property in mind, a lender may agree
to a preliminary meeting to give you a ballpark idea of how much financing it
could provide. However, such a meeting is generally advisable only if you
already have a good relationship with the loans officer. You can leave a poor
impression if it looks like you’re not a serious buyer and are wasting the lender’s
time. Lenders decide how much to lend based not only on your finances, but also
on the type of building, and its condition, age, resale potential, ability to
generate a cash flow (which will support the debt service and marketability). Without
a specific property, it’s hard for a lender to be precise on how much financing
it can offer.
Business Plan:
Do you have a property in mind? You should. Prepare the documents you’ll need to show the lender. These will include a solid
business plan, up-to-date financial statements, and
details of the property you’re interested in. You should plan to make a good
first impression and be well prepared.
How do your books look?
Start by making sure your company’s finances are in order and
organised. One of the most important requirements for getting financing is
having a profitable and growing company. A business with no profitability hurts
your chances at obtaining a loan. Lenders like to see a proven record of
profits year over year.
Meet the lender to clarify the terms and conditions:
It’s best to meet the lender before bidding on the property you
have in mind, especially if it’s your first venture into commercial real
estate. The lender will also advise you on its conditions for granting
financing. Those may include obtaining environmental and building
condition assessments, an appraisal, and a title search. It helps to
use approved experts for this kind of due diligence,
and each lender has its own list of such experts. If you use someone else, the lender
may require a second opinion and the transaction could be delayed.
Don't rush the conditional period:
Your purchase offer should give the lender enough time to review
the terms of the deal. It’s common for offers to provide 4 weeks of
“conditional acceptance” while lenders often need six to eight weeks and
possibly more (especially if due diligence issues arise). The last thing you
will want to do is ask for an extension, especially on a “hot” property or
“remove conditions” without having the full approval from the lender.
James Dunnett is a Consultant in our Brokerage Division and has extensive experience in handling complex leasing and sales transactions. If you need help with your commercial property acquisition or leasing requirements, James will be happy to assist you through every step of the transaction. Contact him at (902) 429-1811 or jdunnett@turnerdrake.com.