An entrepreneur who plans to buy real estate on credit should remember about several important matters. The purpose of the property is an issue that determines the conditions and course of the loan process. The vast majority of banks will want to grant a company loan secured by a mortgage if the property is used for business purposes. On the other hand, an entrepreneur planning to purchase a property or its construction for private purposes may use a standard mortgage and cash loan.
Entrepreneur loan – when cash and when mortgage?
If the basic source of entrepreneurial income is business, banks calculating creditworthiness pay attention to many factors directly related to the running and finances of the company.
You can finance the purchase of a flat or a house, or a construction investment with a mortgage or cash loan. The latter can be considered when you need a relatively small amount to complete the project and you have a larger share of the funds allocated for this purpose. From the point of view of the total cost of the loan and the interest rate, the mortgage will probably be cheaper, and it is usually the more favorable solution in such situations.
When you run a business, you have the same chance of getting a mortgage for private purposes as a client on a contract of employment. However, banks will pay attention to quite different parameters than those of the contracted person. What will he check and what documents will the bank require from you? How will analysts calculate your credit standing if your own business is your main source of income? Can company commitments affect your credit standing?
When to apply for a business loan for real estate?
The seniority of doing business on the market determines when you can apply for a loan. The loan offer of many banks will be available to you provided that you have been on the market for at least 12 months. Some banks set even stricter rules and require a minimum 2-year experience. You can also find institutions that apply less restrictive limits, but only to borrowers in freelancers and those who have switched to self-employment and do the same work for their current employer.
Legal form and method of taxing business activity and creditworthiness
One of the first and at the same time the biggest challenges that you have to face when starting your own business is choosing the legal form of business. It affects not only the aspects related to the functioning of the company, but also the creditworthiness of the entrepreneur when applying for a loan. In the case of individual business operations, the bank will only consider your private and corporate obligations; however, if you operate as part of a company, its corporate loans, if any, will also be included in the credibility test.
Documents required from the entrepreneur when applying for a loan for the purchase of real estate
While the situation of entrepreneurs and other clients looks similar in terms of security used, there are significant differences in the case of documentation requirements. When running your own business, you must provide general, financial and real estate credit documents. These are:
- ID card;
- company registration documents with an entry in CEiDG, NIP, REGON and possibly the articles of association;
- printout of the Income and Expense Ledger from the current period;
- PIT declaration for the previous year;
- certificates from the Tax Office and the Social Insurance Institution (ZUS) on non-payment;
- preliminary contract for the purchase of real estate;
- notarial deed confirming the property right of the seller;
- copy of the land and mortgage register;
- excerpt and excerpt from the land register – if the land is charged with a mortgage.
The company’s financial documents will of course also depend on how you tax and bookkeeping. In the case of a lump sum it will be a record of revenues, and a tax card – a decision on the amount of tax. Full accounting also requires the presentation of a balance sheet and profit and loss account.
Seasonal suspension of operations and credit chances for an entrepreneur
When applying as an entrepreneur for a loan for the purchase of real estate for private purposes, like any other applicant, you are subject to scoring. What matters most to the bank is stability and repeatability of your income, because it is them that decide about the possibility of paying off the liability. Therefore, the specifics of your business and the industry in which you operate are also important. If your business operates not all year round but seasonally, it will be harder to obtain a positive credit decision. You can count on it when you prove that regular suspension of operations is repetitive and long-term, and at the same time does not adversely affect the company’s financial liquidity. It will be very difficult to get a loan if the suspension was a one-time operation, as the bank can top down assume that it was the result of insufficient cash.
In practice, to be able to take out a loan for a house or apartment, you must meet the requirements in several different areas. The bank will provide you with financing if you run a business for the required length of time, have a positive credit history and are not in arrears with any ongoing payments, while showing stable and sufficiently high income.