Qualifying for a commercial loan is a bit more complex than a personal or home loan because lenders are financing a business or property investment, which carries more risk. Here’s a clear breakdown of what you need and how lenders evaluate you:
1. Credit Score
- Most lenders want a personal credit score of 680 or higher, though some may accept lower scores with stronger business financials.
- A higher score improves your chances and may get you better interest rates.
2. Business Financials
Lenders look at the financial health of your business:
- Profit & Loss Statements – Typically for the last 2–3 years.
- Balance Sheets – Assets, liabilities, and equity.
- Cash Flow – Demonstrates your ability to make loan payments.
If your business is new, lenders may rely more on your personal financials.
3. Down Payment / Equity
- Most commercial loans require 10–30% down.
- Some special programs or creative financing (like SBA loans) can reduce this requirement.
4. Business Plan
- A solid business plan is often required for startups or expansions.
- Must show how you’ll generate revenue and repay the loan.
5. Collateral
- Many commercial loans are secured with property, equipment, or other assets.
- The value of the collateral can affect the loan amount and terms.
6. Experience & Management
- Lenders like to see a track record in the industry.
- Your experience running or managing a business matters, especially for riskier loans.
7. Debt Service Coverage Ratio (DSCR)
- Lenders calculate DSCR = Net Operating Income ÷ Debt Payments.
- Typically, a DSCR of 1.25 or higher is required, meaning your business earns 25% more than its debt obligations.
8. Legal & Licensing
- Ensure your business is properly registered.
- Licenses, permits, and insurance may be required depending on your industry.
💡 Tip: If you have weak credit or little business history, SBA loans, partnerships, or using investor equity can help you qualify.
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