Think your business is ready for a commercial loan? Here's what a lender may look at before saying yes.
Whether you're purchasing commercial real estate, expanding your business, financing equipment, acquiring another company, or looking for additional working capital, securing the right financing can be an important part of your next move.
But what actually determines whether a commercial loan gets approved?
Commercial lending isn't based on one number alone. Lenders typically evaluate the overall financial strength of the borrower, the business, the property or project, and the proposed loan.
At EJN Financial, we bring 35+ years of industry experience to helping business owners, investors, developers, and real estate professionals navigate commercial financing. With lending available nationwide, we help clients explore both traditional and alternative financing solutions based on their individual circumstances.
Here are 7 things lenders commonly look for before approving a commercial loan — and what you can do to prepare.
1. Your Credit Profile
Credit is often one of the first pieces of the puzzle.
Depending on the type of commercial financing you're seeking, a lender may review your personal credit, business credit, or both. Your credit history can help a lender understand how you've managed financial obligations in the past.
They may look at factors such as:
- Credit score and history
- Existing debt
- Payment history
- Credit utilization
- Bankruptcies, liens, judgments, or late payments
A less-than-perfect credit profile doesn't automatically mean financing is impossible. Different lenders and loan programs have different requirements, which is one reason exploring multiple financing options can be valuable.
EJN Tip: Know what's on your credit report before applying so there are fewer surprises during underwriting.
2. Business Cash Flow
Revenue may get attention, but cash flow can play a major role in commercial loan approval.
Lenders generally want to understand whether the business generates enough cash to comfortably manage its existing obligations plus the proposed new loan payment.
They may review:
- Business bank statements
- Profit and loss statements
- Tax returns
- Balance sheets
- Existing monthly debt obligations
- Debt service coverage
Strong revenue doesn't always equal strong cash flow. Understanding the complete financial picture before approaching lenders can help determine which financing solutions may be the best fit.
3. Your Debt Service Coverage Ratio
One term you'll often hear in commercial lending is Debt Service Coverage Ratio, or DSCR.
Simply put, DSCR helps lenders evaluate whether the income generated by a business or investment property is sufficient to cover its debt payments.
A stronger DSCR may indicate greater financial flexibility, while a lower ratio can signal additional risk.
DSCR requirements can vary depending on the lender, property type, loan program, and transaction.
For commercial real estate investors in particular, understanding your DSCR before applying can help you better evaluate your financing options.
4. Collateral and Property Value
For many commercial loans, lenders will evaluate the assets securing the financing.
For a commercial real estate loan, this commonly means looking at the property's current or projected value.
A lender may consider:
- Property type
- Purchase price
- Appraised value
- Property condition
- Location
- Occupancy
- Rental income
- Loan-to-value ratio (LTV)
For equipment financing, the equipment itself may serve as collateral. Other commercial financing programs may involve different collateral requirements.
The stronger the collateral position, the more comfortable some lenders may be with the transaction.
5. Your Down Payment or Equity
How much are you investing in the deal?
For many commercial real estate and business financing transactions, lenders want borrowers to have their own capital at risk.
The required down payment or equity contribution can vary significantly based on the loan program, property, borrower qualifications, and overall transaction.
A lender may consider:
- Available cash for the down payment
- Existing equity in a property
- Reserves remaining after closing
- Source of funds
- Overall borrower liquidity
Having sufficient capital is important, but structuring a deal correctly can be just as important.
6. Your Experience and Business History
Numbers matter, but experience matters too.
Lenders may want to know whether you have the background and experience necessary to successfully execute your business plan or investment strategy.
For example, a lender evaluating financing for a multifamily investment property may consider the borrower's experience owning or managing similar properties.
For a business acquisition loan, the lender may evaluate your experience within that particular industry.
This doesn't necessarily mean first-time business owners or investors can't obtain financing. It simply means the overall strength and structure of the transaction may become even more important.
7. The Strength of the Overall Deal
Commercial lending rarely comes down to just one factor.
A lender may look at the entire transaction and ask:
Does this deal make financial sense?
That can include the borrower's financial strength, credit, collateral, cash flow, experience, equity contribution, property performance, business plan, and even the exit strategy.
One weak area doesn't always mean the deal won't work.
Sometimes the solution is finding a different loan structure or a lender whose criteria better align with the transaction.
And that's where having an experienced commercial financing resource can make a difference.
Not Every Commercial Loan Fits Inside a Traditional Bank's Box
One of the biggest mistakes borrowers can make is assuming that a bank decline means the end of the road.
It may simply mean that particular lender wasn't the right fit for the transaction.
Commercial financing can include many different solutions depending on your needs, including:
- Commercial real estate financing
- Investment property financing
- Multifamily financing
- Ground-up construction financing
- Bridge loans
- SBA financing
- Equipment financing
- Working capital
- Business acquisition financing
- Fix-and-flip or fix-and-hold financing
- Alternative and private lending solutions
At EJN Financial, we believe borrowers deserve to understand their options.
With 35+ years of experience in the financial and lending industry, we help business owners, investors, developers, and real estate professionals evaluate financing solutions based on their goals and the strength of their transaction.
Before You Apply, Let's Talk Strategy
The right time to understand your financing options is before an opportunity is on the line.
Whether you're preparing to purchase your next commercial property, expand your business, refinance an existing investment, fund a development project, or simply want to know what financing may be available, EJN Financial can help you evaluate the next step.
Think Outside The Bank™
Lending Available Nationwide.
Ready to Explore Your Commercial Financing Options?
Don't wait until you've found the perfect opportunity to start thinking about financing.
Contact EJN Financial today to discuss your commercial lending needs and explore financing solutions tailored to your goals.
Visit ejnfinancial.com
Financing is subject to lender approval, underwriting requirements, program guidelines, and borrower qualifications. Loan programs and terms vary.