Guide to Getting a Commercial Real Estate Loan in Southern Wisconsin
From understanding commercial loans to finding a location, here's what you need to know about getting a commercial real estate loan in Southern Wisconsin.
Finding a home for your business is similar to finding a home for your family. You must determine your ideal location, how much you can afford, find the right property and secure the necessary funding. Whether you’re looking to start a brand new business or expand an existing one, commercial loans
may be a great option for funding your new venture. We’re here to walk you through everything you need to know about getting the best commercial real estate loans in Southern Wisconsin
and leveling up your business.
What is a Commercial Real Estate Loan?
There are several different types of commercial real estate loans
that you have available to you as a business owner. Speak with a local lender or trusted financial advisor
before making any decisions so that you can ensure that the loan type you choose is right for your business and the growth plans that you have.
are typically used for purchasing property, like additional office locations, storefronts, or warehouse space. If you’re not yet ready to expand, you can also use a commercial mortgage to renovate or repair an existing building that you own, or even use these funds to refinance an existing mortgage loan to make use of a better interest rate.
For businesses looking to rent space, commercial mortgages will likely not be your best option. But there are other types of small business loans
that you can make use of, from equipment loans
to revolving lines of credit,
that allow you more flexibility when it comes to how you spend your commercial funding.
Small Business Real Estate Loans
One option for small businesses are SBA commercial real estate loans. These are government-guaranteed loans that are offered through both national and local banks, typically with lower interest rates and more flexible repayment terms.
The SBA 504 loan is used for real estate or long-term equipment purchases and is typically made up of two different components– the bank and a Certified Development Company (CDC). The percentage of what each will contribute to the loan and the down payment you would be responsible for depends on the deal. These loans cannot be used for debt refinancing, so they should not be used to consolidate or refinance an existing commercial mortgage.
The SBA’s most common loan, an SBA 7, can provide funding of up to $5 million through an affiliated lender. This money can be used for new property construction or purchase, renovations, or refinancing current business debt. There are fairly lengthy requirements for businesses to be able to qualify for an SBA 7 loan, so be sure to talk with your lender to see if this is an option for you.
Ag Real Estate Loans
Known as America’s Dairyland, it’s no surprise that Agriculture is one of the top industries in Wisconsin
. Starting an ag business can be more intricate than starting a retail business. If your dream is to start a farm, you will need an ag real estate loan. An ag real estate loan
can cover farmland and a farmhouse or other buildings on an ag property. You can apply for an ag real estate loan through an ag lender. An experienced ag lender will guide you through the loan process and help you secure funding for your agribusiness needs as your farm grows.
Commercial Real Estate Loan Requirements
Just as you would with a personal home mortgage, there are certain commercial real estate loan requirements that you need to meet in order to qualify for your loan.
Time in Business
All commercial mortgage lenders
typically begin by asking how long you’ve been in business. The longer, the better, but in most cases, two years is the absolute minimum. Anything less than this isn’t impossible, particularly if you’re starting a new business
and need funds to get you off the ground, but you may need to jump through more hoops or will be limited to only a few types of commercial loans.
Personal and Business Credit Scores
Lenders will review your personal and business credit scores to examine and assess your loan repayment ability. Your personal score won’t necessarily determine your approval and could affect your loan interest rate. Business credit scores are assessed on a different scale from personal ones, so it’s important to familiarize yourself with this before applying for a loan.
Business Revenue and Profit
When a lender reviews your application, annual revenue and profit will be two of the top areas that they assess. You’ll likely need to provide at least three years’ worth of profit-and-loss (P&L) statements, along with the current year-to-date. All banks will want to see that your business is at least profitable before they consider providing you with a loan, so the stronger your revenue statements, the higher your chances of approval.
Business Bank Statements
Business bank statements will help lenders determine the average cash flow within your business, from money coming in to expenses going out. Four to six months of bank statements should be enough.
Personal and Business Tax Returns
You may not have a business tax return specifically if your entity type is a pass-through entity (e.g., an LLC, sole proprietorship, or S-Corp), as your business taxes will be processed through your personal tax return. In most cases, you need both to proceed with the loan process, as they show proof of income and other assets that lenders evaluate when making their lending decision.
Loan Purpose and Amount
You’ll need to provide a statement outlining exactly what you plan to use the loan funds for and, of course, how much you would like to borrow. Always ask for what you need and can afford to pay back, and be clear and upfront about how exactly you will use this money.
For many small businesses, this won't always be part of the loan application process but will, in some cases. For example, lenders look at business plans to evaluate their decision on an SBA loan.
A good business plan should include a description of your company and industry, the products or services that you sell, a brief overview of the team, operations and facilities plans, and any marketing or future planning that you can include to show that you’re thinking about growth. A SWOT (strengths, weaknesses, opportunities, threats) analysis, current and projected financials, and a promotional or sales strategy are always useful to include.
Disclosure of Any Additional Business Debts
Lenders will need to know about any additional business loans that you may have already. They want to make sure that you can afford all of your repayments, particularly if you have monthly outgoings that are supporting other debts. If your debt service coverage ratio isn’t high enough, you may need to pay down more of your existing debts before being able to apply for a new loan.
Any legal documents that relate to your business will usually form part of your application. This can be anything from your LLC operating or franchise agreement to your current commercial lease or commercial real estate purchase agreement. You may also be asked for proof of collateral or property, which will be used to ensure the loan.
How to Get Approved for a Commercial Real Estate Loan
As both your personal and business finances play a crucial role in deciding whether or not you’ll be approved for a commercial real estate loan, it’s important to ensure that your finances are in order before you start the application process. Improving your credit scores, paying off or paying down existing debts, and minimizing your risk in the eyes of the lender are all good ways to help improve your chances. Other steps that you can take that can significantly boost your approval chances include:
- Agreeing to pay a larger down payment or choosing a less expensive property
- Adding an investor or co-signer to your loan agreement
- Pledging additional collateral when signing for the loan
- Having a business savings account with 6-12 months of financing funds
Finding Properties for Your Small Business
Once you have your financial ducks in a row and feel that your approval chances are high, it’s time to start looking for properties.
Here are six factors to consider
when choosing a business location:
- Cost – Just as you search for homes you can afford, you want to find a commercial property that is within your price range. The price can make or break a location, but there are other things you should consider when trying to find a successful location.
- Accessibility – Does your business need to be visible to customers and accessible to receive deliveries? If you need to be accessible to customers, consider a place that customers can get to by multiple means of transportation; walking, driving, bus, or train. Downtown Beloit is very walkable. You can also get around by bicycle, car, and bus.
- Competition – Proximity to direct competition can make or break your business. While being close to other businesses can help get your foot traffic, being too close to competing businesses can take away from your business. Unless you have something completely unique and innovative, avoid areas with multiple businesses like yours. Here is a look at some of the most recent businesses to open in Beloit.
- Security – Before you purchase commercial real estate, you should get an understanding of the crime level in that specific area. This may help you determine whether you want to find an alternative or just ramp up your security efforts.
- Talent Pool – Do the residents have the skills you need to operate your business? If you’re opening a shop or restaurant in a busy hub, this shouldn’t be too much of a problem. If you are launching a technology company, you want to make sure there are prospective employees with the skills you need within commuting distance. Some of the fastest-growing jobs in Wisconsin are in technology and health services/equipment.
- Growth Potential – Will the property be able to accommodate business growth? If you’re already upgrading to a larger or secondary location, you want to continue to look ahead to further expansion. You may want to consider a property slightly larger than what you need or one you can build on or expand if you start to outgrow your space.
Wisconsin is a state of economic growth
. For businesses looking to grow in Beloit, Clinton, Delavan, Argyle, Darien, Elkhorn, Janesville, Monroe, Williams Bay, or Walworth, WI, investment in local commerce is a sign of great things to come, and you could be part of it too.
Get a Commercial Real Estate Loan in Southern Wisconsin
If you’re ready to take out a commercial real estate loan, contact the team at FNBT. Our experienced lenders are ready to help you get approval for a commercial mortgage loan
or explore more business lending options
to take your business to the next level. Read more about how to get a business loan
, finding the best small business loans in Wisconsin
, or contact us today
to get started.