June 4, 2014
3 Things You Should Know About Real Estate Lending in Maryland
With the U.S. economy on the road to recovery and banks feeling more comfortable with lending, commercial real estate lending is expected to pick up significantly over the coming year nationwide as well as here in Maryland. If you’re in the market for commercial real estate or want to increase your company’s assets, purchasing your company’s operating space or expanding operations to other locations is a good move.
However, buying commercial property is a big step and one that requires a lot of thought and planning. In the right circumstances, it can be a hugely beneficial move, creating more value for your business and also allowing you to potentially add new revenue streams to your bottom line. But before you jump in, there are three things you should know about commercial real estate lending in Maryland.
Business and Personal Credit
Business credit is a common tool for helping banks figure out how creditworthy your company is, and what the likelihood is of you being able to pay back a commercial real estate loan. Building business credit takes time and is not unlike building a strong personal credit history.
Making vendor payments on time is a great way to start building business credit, as is opening up a business credit card that you pay off each month. Keep in mind, though, if your business doesn’t have sufficient credit, the bank will need to pull your personal credit history to approve you for a loan. And, just like with personal loans, a better credit history will get you much more favorable loan terms and lower interest rates.
Understand the Appraisal Process
An appraisal of the commercial space intended to be purchased will have to be completed before a commercial real estate mortgage can be approved. The purpose of an appraisal is to figure out how much money the bank will need to lend to the business owner, as well as what the actual value of the property is, since it acts as the collateral for the loan. Additionally, an appraisal will help make sure you’re paying a fair price for the commercial real estate you’re interested in buying, based on similar properties and other available housing and neighborhood data.
The appraisal process for commercial real estate is quite different from the appraisal process for residential real estate. Commercial real estate appraisals are undertaken by the lender and a full appraisal can take anywhere from a few days to a few weeks. While a lot of different factors play into an appraisal, there are a few that are standard to any appraisal.
First, an appraiser will conduct an inspection of the space. This is to check the size and the condition of the building. Additionally, an appraiser will research the neighborhood the space is in, as well as similar buildings in the area, and draw upon publicly available data to get a well-rounded and unbiased value for the property.
Be Patient Throughout the Approval Process
Getting a commercial real estate loan is a time-consuming process. From gathering all of the right financial documentation and finding the perfect commercial space to going through the appraisal process and getting a decision from the lender, the entire process can take up to 4 months. Sit down with your lender and discuss what steps you’ll need to take to get the ball rolling and make sure to have all of your financial information organized and ready. This will help make the process as smooth as possible and help move things along towards closing on your commercial real estate loan.