Commercial real estate (CRE) loans are often more complex than a standard residential loan. With that being said, there are many factors that can influence a lender's decision when it comes to financing a CRE loan. While there are many instances where lenders are presented with unique situations from the borrower, there are some general factors that all lenders will likely take into consideration regardless of the complexities of the transaction.
Lenders want to see that the borrower has a good credit score. This helps paint a picture of how responsible the investor is with their finances, revealing the level of risk involved. Most lenders want to see a credit score of 680 or higher when financing a CRE loan. Private money lenders may be more flexible and willing to work with a lower credit score, but it is not guaranteed.
A lender’s top priority is making sure they will be getting the money they are lending back. In order to determine the likelihood of this, lender’s will look into a borrower's repayment history. If there is a delay in repayment there will be a drop in credit score.The longer the delay, the more the credit score declines.
Duration, Types, and Quantity of Credit Lines
The longer you have built up your credit, the more dependable you appear to a lender, so long as those credit lines have been well maintained. Another way to ensure your credit score remains high is by minimizing the credit applications you have open. If a lender sees that a borrower has applied for several new lines of credit or loans, this poses a red flag and will likely result in refusal of the loan application.
The ratio of outstanding debt to the loan amount being taken needs to be relatively low in order to obtain a new CRE loan. Even if the borrower makes timely payments, a lender will not want to see a large amount of current, outstanding debt.
There are certainly other factors that can influence a lender’s decision whether or not to approve a loan, but it is helpful to at least be aware of these general contributors before applying for a new CRE loan to give you the best chances of being approved.
The overarching theme here is to make sure and maintain your credit score and debts properly if you’re hoping to be approved for a loan. Finding a lender that is flexible and willing to work with you to meet your unique needs is one thing, but finding a lender that is willing to take on the risk of lending money to someone who appears irresponsible is nearly impossible.