How to Fund Your Business with a Real Estate Loan

Your small business needs reliable financing to ensure smooth, sustained growth. Whether you’re just getting off the ground or looking for ways to aggressively expand your small business, learn how to back a loan with commercial real estate in order to receive the funding you need.

Many small business loans require backing. Offering equipment, inventory or even real estate as a way for your investor to ensure they receive their payment is an essential part of borrowing money for a new business. Because most loans require extensive financial history and proof of income, offering valuable collateral can help you get the financing you need before you’ve built up sufficient financial history.

While you can use a variety of valuable assets as collateral, one of the best ways to back your small business loan is with commercial real estate. When you back your loan with real estate, you’ll enjoy a percentage of the value of your property as a loan. Whether you’re using the loan to purchase property or to fund your business, finding the right property is key to receiving a loan.

Even with excellent collateral, you’ll still need to prove that you’re capable of paying back your loan. Lenders look at two main areas beyond collateral to determine whether you’ll be approved for a loan: cash flow and credit rating. Depending on your lender and the type of loan you’re looking for, each of these could be more or less important. Having valuable, reliable collateral is one of the most important factors to receiving your loan.

Your cash flow is essential to prove that you can continue to make long-term payments. If your business is continuing to lose money, you’re unlikely to pay off a loan. Offer financial statements detailing your ability to make timely, consistent monthly payments to your lender.

Another key component is your credit rating. Although you may not have an excellent credit score, even small business owners are required to submit their credit score for most real estate loans. Look for ways to build your credit score, such as paying off your debts, increasing your available credit and making timely payments.

Whether you’re looking for a major loan to finance your business or you need a short-term solution to a current cash flow issue, commercial real estate makes excellent collateral to improve your application. Apply for the funding you need and be sure to clearly outline your financial history, the capability of making payments and your credit score.

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