Would be investors are often intimidated by the requirements to complete commercial loan packages and concerned about their lack of experience placing materials in the correct format for a commercial or residential loan application. The bad news is the requirements are significant. The good news is preparation is straight forward. Any thorough and experienced person can work through the process and present a credible complete application with patience and determination.The elements of the commercial loan package are:
An executive summary that describes your business plan, the investment, the operations plan, marketing and sales objectives, key financial projection facts, and the exit plan.
Personal financials for the principals describing personal property, liquid investments, schedule of real estate, partnership ownership, unsecured debt, secured debt, mortgages, child support, alimony, monthly income, other recurring income, and contingent liabilities (personal guarantees and cosignatures).
3 years personal tax returns of the principals.
3 years tax returns of the buying entity.
Tax ID certification.
Operating Agreement or bylaws of the purchasing entity.
Articles of incorporation or equivalent documents.
3 years historical financial of the property or project being purchased.
3 years tax returns of the property or project being purchased.
Property tax record for the property.
Pro forma financials for the property post purchase. Reserves must account for non-immediate repairs from the property condition report.
UCC lien search.
Property Condition Report.
Capital budget including cash for immediate repair items off the of the Property Condition Report.
Environmental study(ies) (Phase I is a minimum).
Survey (must be to the lender’s specification),
Insurance binder (must meet the lenders specifications and normally includes a liability binder),
Appraisal (should include a land value separate from the property value). The appraisal will include comparable sales and rent comparables. Banking regulations normally require that the appraisal be bank ordered. A good approach is to have a friendly lender order for the appraisal. In this way, if you have to change financing you are still on firm ground.
Management agreement. The cost of management should fall in the customary ranges.
Purchase and sales contract and any amendments.
Certified HUD1 or settlement statement.
Capitalization table of investors including percentage ownership and capital investment.
Manager / principal biographies.
Background on the management company including refereces.
While the purchaser has a range of additional items that should be part of their pre purchasing verification, these items constitute the critical items that the lender will require. The prudent investor can use these information sources as a good foundation to their own due diligence items. And, the preparation of these documents will put the project on the right track toward closing.