Shopping for Commercial Loans

I buy smaller multi-family properties. My strategy is: buy them, fix them up, rent them out and hold them. This is a great strategy for building cash flow and wealth. A great way to get the funds to pursue this strategy is to secure commercial loans.

I discussed commercial loans in a previous post. Here just let me reiterate that commercial loans are loans that are much more investor friendly. They can be used no matter how many properties you have, if you have an LLC or even several LLC’s.

Where does the smaller real estate investor find these types of loans?

Do not bother with the big banks, like Bank of America, SunTrust or Wells Fargo. They most likely are not going to talk to you unless your project entails several millions of dollars. Rather, you want to talk with the smaller, local community banks or credit unions.

Before the crash in 2007, almost anyone could get a commercial loan. Today, many banks are not eager to loan on real estate, but some are. You will just have to knock on several doors to find a bank willing to work with you.

How to Get a Commercial Loan

Here are some tips before you go knocking.

Get an Introduction – Try to get an introduction rather than cold calling if possible. If a good customer of the bank can provide a recommendation for you, it can really go a long way. This is one reason why networking with other investors is so important.

If You Cannot Get an Introduction– You are going to have to make a cold call. Ask for an appointment with the vice president in charge of commercial lending. Banks are always looking for new clients to lend to. It is how they make their money. So they will most likely be happy to talk with you.

Get Some Experience First – If you have just started out in the business, you may need to gain some experience first. Use up your more conventional financing opportunities first to gain this experience. Bankers often want to see that you have some past success and experience. They generally like two years or more, especially if you are trying to do business in an LLC.

Put Together An Info Packet – Put together an info packet about you and your investment goals to present to the bank. This packet should contain at a minimum 2 years of tax returns (personal and corporate), a personal financial statement, a description of your properties and a brief overview of you and your business. Remember you are selling yourself to the bank. Present a good case as to why they should lend you money.

Don’t overlook the importance of this packet. Part of your job is to sell yourself during your meeting, but another part is to present a clear, concise, well thought out, proof read picture of who you are for the banker to look at and examine later. It had better show that you are making money and how you plan to continue to do so in the future.

So there you have it. I bet you did not expect to have to wear a “sales hat” as a real estate investor. But, knocking on doors, selling you and your business and convincing people that you are a good investment is part of the job too.

If They Say No…

Expect a lot of banks to say no these days, and that is fine. It is just the times we live in. If a bank does say no, ask why. You can gain some valuable insight into your business and your business numbers this way.

Always be kind and thankful, because banks change their landing criteria all the time. What is a no today may be a yes tomorrow. Never burn a bridge and always leave the door open to talk again in the future.

Most of all you must be persistent. Keep trying! Yes, many are going to say no to you. Just, keep knocking on those doors. There is one out there that will likely work with you.

Finally, let me ask other investors out there how they see the commercial loan market. It seems to me things may be loosening up ever so slightly. How are things in your market? Let us know in the comments.

Photo: Steve Snodgrass

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.