Questions you need to ask your commercial mortgage lender: A commercial mortgage lender can help you get a business loan for a variety of purposes.
Depending on the type of business you own, the loan could be used for property improvements, buying equipment, or paying off existing debt. Before choosing a lender, consider these questions.
These questions will help you find the right lender for your business.
You can also learn about business purpose loans here.
Questions You Need to Ask Your Commercial Mortgage Lender
1. Prequalification
During the prequalification process, the lender will ask you a series of questions about your credit history. It is a good idea to be completely truthful, as this will give the lender the best possible idea of your financial situation.
In addition to your credit score, lenders will also ask you for an estimate of your income and assets. It is also a good idea to make these estimates based on the most recent information available.
Your lender will also want to know what purpose you are pursuing with the loan. If you are purchasing a property for your business, you may need funds for property improvements, purchasing equipment, or paying off an existing loan.
Whatever the case, you need to be able to show the lender that you will be able to pay back the loan.
2. Preapproval
If you’re in the market for a commercial mortgage, you may want to know what questions to ask your commercial mortgage lender before submitting an application. Lenders will often ask about your credit history, so it’s vital to provide as much information as possible.
Typically, you should have a credit score of at least 680, with no personal bankruptcy or foreclosure in the past five years. If you’re unsure of your credit score, you can access a free credit report through a reputable website.
When applying for a commercial mortgage, you’ll need to tell your commercial mortgage lender what you’re looking for in a loan. This way, you can limit the amount you’re willing to spend on a particular home.
You can also tell your real estate agent exactly what your budget is so you don’t fall in love with an expensive home.
3. Interest rate
One of the most important questions you should ask your commercial mortgage lender is about your credit history. Your credit score is crucial, and your lender will look at both your personal and business credit history to determine how much you can borrow.
To get an accurate estimate of your credit score, you should request a copy of your credit report from a reputable source.
You should also ask about the loan closing costs, reporting requirements, and timeline of the loan approval. In addition, you should ask about the experience of your commercial mortgage lender.
You want someone who has been in business for a while, and you don’t want to have to deal with anyone who can’t answer your questions.
4. Escrow account
If you’re planning to set up an escrow account, you’ll want to know about the rules that govern escrow accounts. Generally, lenders must have a written policy about escrow account waivers and must adhere to applicable law and mortgage documents.
The lender should also consider the borrower’s financial capacity before granting an escrow account waiver.
First, escrow accounts may need to be billed for a certain period of time. For example, flood insurance premiums may be due every three years. In these cases, the servicer must estimate the borrower’s payments for a full cycle of disbursements.
As such, monthly payments may not reach their lowest amount for two out of three years.
Debt service coverage ratio
The Debt Service Coverage Ratio, or DSCR, is a measure of how well a borrower’s cash flow covers the loan’s interest and principal. If the DSCR is less than 1.0, the borrower likely has a difficult time meeting the loan’s debt service obligations.
Lenders use DSCR to determine if a borrower’s cash flow will be sufficient to meet all of the loan payments. If the ratio is higher than 1.0, it means that the borrower will be able to make all of the payments.
The ratio is determined by dividing annual net operating income by total debt service. This includes interest, principal, and any non-cash charges. A loan’s debt service coverage ratio should not be less than 1.25.
For example, a business with an annual NOI of $250k can repay its debts with 125% of its income.
