Commercial Real Estate Loan Application Basics - For Owner Occupied Properties

Many borrowers are pressured to close quickly once they find the commercial property that they are looking for. The seller typically wants to close faster than possible and the borrower wants to make sure they have done all of their due diligence before closing. The key to a quick close is complete and accurate information. The problem is that most borrowers do not know what they need in order to get a complete and accurate loan application until they first talk to a lender. If you have all of this information ready before you even meet a lender you can shave 2 weeks or more off of your closing time. A complete and accurate application package will get you a quick answer, an interested loan officer, and faster closing.

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Lets look at what a typical owner-occupied real estate owner will need to submit:

1. A Complete Address and Color Photos of the Subject Property - This is the initial eye grabber for the lender. Take time to get a good photo. If the property looks run down, the lender will have less interest in the property. Do not send a picture from Google Maps or from some other random source. Go out and get a good photo of the property

2. A Complete Personal Financial Statement (PFS) - The lender wants to see what personal assets and liabilities the borrower has. They will pull this off of a personal financial statement. A universally accepted PFS for owner-occupied commercial real estate is the SBA Personal Financial Statement. It is a quick 2 page form and can be filled out very quickly.

3. A Tri-Merge Credit Report - The lender needs this to check the borrowers credit score, but also to compare with the liabilities that are listed on the PFS. Make sure that both match up. If you know you have derogatory items on your credit report or late payments, be sure to have a written explanation for each item. you WILL be asked for this and if you can supply it on demand it will look very good to the lender. You will earn their trust because they see that you take care of your credit and know what is on your credit report.

4. A Resume on the Borrower - The lender will want to see what experience the borrower has in their field of work and with the property type of the subject property. Take time to make sure you can show sufficient experience with both. I have seen lenders turn down exceptional borrowers who have not taken the time to show their experience and make their resume stand out. This is time well spent. Many lenders will also want to see a schedule of real estate owned as part of your resume. This will give them an idea of your experience as a commercial property owner.

5. Business History - This is the chance to sell your business and yourself. There are many forms out there where you can fill out information. If you can avoid this and come up with your own business history, it is time well spent. Talk about how it was started, goals you have reached, direction for the future, past trials and how you overcame them, explain your competition and why you have an edge on them, tell about awards, show increased revenue and profits, and be ready to explain a decline in revenue or profits. If the lender can see that you know your business and industry they will have more confidence in you as a borrower.

6. 3 Years of Personal Financial History - This is typically shown through your last 3 years of filed personal tax returns with all schedules. Most lenders will also want to see the last three months of bank statements so they can show a paper trail of your liquid assets stated on your personal financial statement.

7. 3 Years of Business Financial History - This will include the last 3 years of filed business tax returns as well as the last 3 years of business financial statements (profit & loss and balance sheet). They will also want to see the current year business financial statement or YTD financial statements within the last 30 days. Lenders will also request a business debt schedule and in some cases AR and AP aging reports.

8. Executive Summary Detailing Financing Needs - While this is not always necessary, a clean and detailed request in writing is always nice for the lenders to have on file. They are working on multiple deals simultaneously and appreciate being able to refer to this when they do not remember every detail.

I have seen borrowers that have had this information ready and others who have not. Who do you think has had faster closing times?

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