When a business begins to grow out of their current facility and needs to build a new facility or an addition to their current one, a commercial construction loan is likely needed. What is needed to acquire such a loan? Let’s look at the requirements below.
A commercial construction loan lender will often ask for a variety of documents and for signatures on a variety of paperwork in an effort to make a decision to lend you money.
One of the first things a lender may need is collateral. They will want to verify that your business has built up enough value to provide the lender with security in the event your loan defaults. Collateral includes the value of buildings, equipment and accounts receivable.
The lender will want to evaluate your credit score. Having a score near 700 will give you a positive rankling. This proves to the lender that your business is a low risk borrower with a positive reputation for repaying loans as they are lending you a large amount of money.
A financial institution will need to verify the strength of your business. They may want to see documents such as income tax returns, your profit and loss statements, verification that you are consistently generating revenue, and that your leadership is strong.
A Positive DSCR
A lender may want to see your Debt Service Coverage Ratio (DSCR) to determine if you have the ability to make your debt payments. They will be looking for a score of 1.4 or higher to move forward with the commercial loan acceptance. Your DSCR can be calculated by this formula:
Net operating income
Who is the builder?
Another requirement that lenders will use to determine loan eligibility is who is constructing the new site. They will determine if the builder is reputable, able to complete the project, and is a member of a builder’s association.
The financial institution will be looking at your construction plans. They may want to guarantee that the project matches your request for funds. They may ask for a list of building materials, a timeline for its completion, the labor costs and more.
Often the lender will ask for a down payment as a guarantee that you are moving forward with your construction. The down payment can be anywhere from 20-50% of the completed project’s value.
These are among the many requirements a lender may ask to see in the process of accepting your business for a commercial business loan. The professional builders at Shrock Premier will provide you with quality builders, reputable service, and an unbeatable timeline. Give them a call today.
Shrock Premier Custom Construction
234 West Main Street
Loudonville, OH 44842