In this article, I am going to share with you how to get a loan for your commercial real estate investment without giving any collateral to the bank. In the world of investing, the loan is pure leverage. If you are not a high net investor, you might need a loan, especially in real estate investing. Because it can help you to grow at a rapid speed. Always remember:
- The loan is like a loaded gun. In no time, it can kill the owner. So be careful, be very careful.
But the question is, why will the bank lend me money without any security or collateral? Anyone can have that loan by giving collateral, but how can I get the money without anything as collateral? How?
Table of Contents
- Financing for Your Commercial Real Estate Investment
- Property Finance Question One
- Finance Question Two
- Finance Question Three
- Special Tips for Success
Financing for Your Commercial Real Estate Investment
Sometimes the bank will lend you money without any previous collateral, but they will take your current investment property as collateral. They will own a percentage of it. You have to qualify for it. They have some terms and conditions to give you the loan without any security.
To fulfill their terms and criteria, they will ask you questions. You have to answer accurately, and then you will have your money ready. Because you are taking this loan on your guarantee.
Property Finance Question One
The first question they will ask you:
- How strong are you financially?
- How strong is your company’s financials?
Answer this you need to show them your report card. No, not that academic report card but your financial report card. All information about your income, expenses, assets, liability, etc. They will look at:
- How good are you at handling your assets?
- Is the amount of total assets bigger than the liabilities?
- Are those assets generating positive cash flow?
By looking at a person’s academic repeat card, you can tell his strength in the Academic sector. By looking at the financial report card, you can tell if the person is financially strong enough? How well is the person with the money?
Many investors hire an account to manage this report card. You can do it by yourself if you are confident enough. It is necessary to convince the bank of the loan in the first place. You can call it the first impression.
Nowadays, it has become easier. Software like Quickbook made the work very easy. You can prepare your report card in about an hour without an accountant. Show them the report car and convince them with your confidence. Now there are more questions they will ask you to clarify things in detail.
Finance Question Two
- How much experience do you have in this development sector?
- How well do you know this industry?
- How many other projects have you completed successfully?
- If this is your first project?
- What is the main strength that you are going after to make this successful?
- Have you ever tasted failure in this kind of project? If yes, how?
- How good are your team members? Are they experienced enough? Are those people strong enough? Will they be able to finish the work on time?
These are some next-level questions, that they will ask you to get things more clear. If you answer these questions with the proper proof, then you are 70% done to get the loan. Now it’s time to make it 100%.
Finance Question Three
Answer these very carefully:
- What is the source of your equity? I mean from where you are getting money, other funds besides us? The bank will not give you the whole amount of money. You need to use some of your own money also.
- How much money are you willing to invest?
- Have you ever taken a loan? If yes, what is the status of it?
Remember, investors only want the equity, not the money they want the partnership and the percentage of the asset.
These are some basic questions, but these are not enough. They might ask you more. So be prepared because you are not giving any security they can sell to make up for their losses.
After the approval, you are going to receive the money at once. They will send it monthly by looking at how the work is and how is it progressing by sending an analysis on the spot? The agent will create a report, and if everything looks fine. Then your next payment will be released.
Special Tips for Success
Have you seen the Shark Tank TV Show? Just like Entrepreneurs present their startups and show them why it is a profitable business and how those sharks ask questions, you will face the same situation. Not exactly like that, but similar to that.
You must answer all questions with confidence. Some investors will say they will fund you. Some will say, I am out. But ultimately, you will decide what is best for your investment.
Most real estate investors do it as a partnership or via referrals. They find a good building and let their investor friends help them finance the property. They go out and tell their friends about it, if one of them is interested, they will give you the money.
It is all about referrals. That is why before you go out to look for an unknown investor, contact your friends and invest with them. You will feel secure. I have shared the reality of investment partnership in commercial real estate investment.
You can use it to fund any investment, a residential, warehouse, or development project. The process is the same. You have to build a network to get the loan faster.
Go out and make friends now because those are your key to growing in this real estate business.
So this is the process you need to follow to get the loan without giving any collateral. Once again, remember:
- The loan is like a loaded gun
I hope now you understand the main formula behind the commercial real estate investment loan. And I hope this information will help you to get your loan fast.