How to Get a Commercial Loan in California

Real Estate Loan: How to Get a Commercial Loan in California?

Last year, the index of commercial property prices reached 207.61 points, double since 2010. Rising interest rates, increased housing demand, the economy, and various other factors have contributed to the rise of this cost over the years.

Construction costs for a particular project depend on several factors, such as land, size, value, and location. In a busy place like California, material and labor costs drive the prices, which have increased to approximately 25% in the past decade. Real estate loans become necessary because of high construction costs.

To understand how to get a commercial loan in California, you must know how it helps and what factors affect its approval.

Real Estate Loans in California

According to the California Credit Union (CCU), you can access up to $15 million in commercial loans. A standard residential mortgage assists in buying or constructing a residential property, but a commercial real estate loan finances commercial property projects. Get help with:

  • Buying a commercial property
  • Constructing a commercial building
  • Renovating a commercial building
  • Refinancing a commercial property at a lower interest rate

Factors that Determine a Real Estate Loan Approval

Applying for a commercial loan is easy. The problem occurs when the lender rejects your application. But why would they do such a thing?


Factors that Determine a Real Estate Loan Approval

The Size of Property Occupancy

Your property must have a minimum of 51% business occupancy to qualify you for the loan. If not, opt for an investment loan, ideal for rental properties with less than 51% occupancy.

Personal Finances

The lender will also check your finances if you manage your company yourself. Do you have a good credit score and a consistent income source? You are low-risk, and the lender may accept your commercial loan. However, if your financial situation is unstable, the bank may reject your application because they cannot ascertain your ability to repay the loan.

Business Finances:

Did you know most small American businesses fail because of cash flow problems? Poor sales, property damage, or lawsuits are typically responsible. So, most lenders seek small business finances before approving a commercial loan. The lender will evaluate your debt service coverage ratio (DSCR) by dividing the property’s annual net operating income (NOI) by the annual debt payment. This ratio signifies whether your business is profitable or facing losses, establishing whether you can repay the loan. Apart from this, the lender will also consider your business credit score to discern your creditworthiness.

Where to Get Commercial Loans in California


Where to Get Commercial Loans in California


Get a commercial loan from a reputable bank at an affordable interest rate. Most banks offer up to $1 million to small businesses. However, the application process is strict, detailed, and slow with increased banking regulations.

Commercial Lenders:

If you want your loan faster, choosing a commercial mortgage broker can help because their underwriting measures are less rigid. Although you can have your loan within a few weeks, you will pay higher interest rates.

SBA Loans:

SBA or Small Business Administration does not finance small businesses directly. They are instead partnered with lenders and set regulations on business loans to streamline access by small businesses. It reduces the risk for lenders if the borrower defaults on the loan since the SBA will repay the lender up to 85% of the loan balance. Since SBA loans are of a variety, choose what suits your business.

Additional Loan Application Requirements

  • Company certification
  • Tax return of up to 5 years
  • Proof of citizenship
  • A business plan showing how you will use the loan
  • Projected cash flow throughout the loan term
  • Business records
  • A third-party appraisal

The lender will also offer other repayment terms, such as a grace period during which your loan won’t accrue interest, but it will depend on the loan amount and repayment method.

We hope our blog can help you understand the factors needed to get a commercial real estate loan for your property renovation, construction, or refinancing in California. For more queries and information, consult our expert.

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