Structured finance encompasses all advanced private and public financial arrangements that serve to efficiently refinance and hedge any profitable economic activity beyond the scope of conventional forms of on-balance sheet securities (debt, bonds, equity) in the effort to lower cost of capital and to mitigate agency costs of market impediments on liquidity.
Especially, the distinction of the various methods of credit risk transfer through credit derivative in a wider and narrower sense as well as securitization transactions illustrates the need for more comprehensive and creative regulatory considerations.
To make the right impression and secure the loan you need, it is important to be aware of some common mistakes.
1. Not thoroughly researching your options. You want to ensure that you have done your due diligence and reviewed commercial loan terms from different banks and other commercial lenders.
2. Not selecting the best lawyer. You should hire a commercial real estate attorney -- one who is very experienced in negotiating the types of real estate loans you are seeking. This is not the time to go with a friend or sister-in-law who happens to be an attorney.
3. Failing to have a definite plan. Lenders want to see that you have a plan in place for using the money. They also want to see a timeframe in which you anticipate completion of the planned project.
4. Failing to have a business plan. It is always advantageous when seeking a loan, or any type of funding, to have a well-structured business plan that includes all of the necessary operating and financial data. For more information on business plans, see Ten Reasons You Need a Strong Business Plan and the AllBusiness.com . Business Plan Center.
5. Not having cash ready to put into the project. Before you apply for a commercial real estate loan, you need to make sure you have some available cash on hand. Commercial lenders want to see that you are investing your own money to cover a percentage of the project.
6. Not reviewing your balance sheet. Before taking out a loan, you should review your balance sheet and analyze your cash flow and liabilities to make sure that while paying off the loan you will still have enough money to run the property properly. For more information, check out The Balance Sheet for Small Businesses.
7. Failing to negotiate the best deal. This ties in closely with number two, regarding a competent real estate attorney who can help you negotiate the fine points when reviewing a commercial real estate loan offer.
8. Going straight to a familiar lender. Yes, it is good to have a rapport with a lender, particularly when you need a loan. However, there are new real estate products offered constantly, and it is worth your time to check out some of the other possibilities before going straight to your favorite lender.
9. Not checking with the SBA. It is always worthwhile to check with the Small Business Administration to see what loans they can help you attain and what advice they may offer.
10. Not having your ducks in a row. Make sure you have all the documentation that the lender would expect, and be prepared to show why the property or project makes fiscal sense.
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