The financial package submitted with the application for a commercial real estate loan is the best opportunity to tell the a convincing and persuasive story about the property. In addition to putting your best foot forward, a complete set of financials will shorten the time frame to approval.
Assume the lender wants to approve the loan request
Lenders are in business to lend money. It is how lenders make money. Start with the assumption that the lender wants to approve your loan and make it as easy as possible for the underwriter to stamp APPROVED on your application. The best financial packages will help the underwriter understand the project, the amount of capital required, and the ability to repay the debt.
Think like a lender
The lender’s biggest concern is the ability to repay the debt. If you were the lender, what would you want to know about the property and the borrower? Start with an outline of the project and a request that includes the amount of the loan requested, the names of the borrowers, the address and a picture of the property. Accuracy is important. A misspelling or incorrect address can cause a delay later in the process. If more than one type of loan is desired, outline each loan type and amount. You are competing for the lender’s resources. This is the time to make the case to the lender about why your project should be funded over another.
Tell your story
For most loan types, lenders will want to see documentation of rent receipts, occupancy information including leases, profit and loss statements and appraisals. The business plan for the property, including a renovation plan if necessary, along with market demographics will provide insight to the property opportunities. The business plan should include a pro forma with cash flows, the renovations budget, bid information from the contractor, rent and lease projections, loan repayment plan. Especially with a property in need of renovations the lender will focus on the ability to repay the loan and the quality of the asset if the borrower defaults. The renovation plan should be clearly outlined. The shorter the timeline for the renovations to be completed the more appealing the risk. This is particularly important for a borrower without a track record.
- Business tax returns
- Owner(s) tax returns
- History of occupancy including with rent receipts, occupancy rate and copies of lease documents
- Property appraisals
- Cash flow statement
- Profit and loss statement
- Vision for the property
- Pro forma with cash flow projections, loan repayment schedule, renovation or development expenses, projected occupancy rate, rent receipt projections
- Renovation or development plan and timeline, supported by contractor bid if available
Collaborating with a mortgage broker
Preparing a complete financial package can be an undertaking, particularly when applying for multiple types of loans from different lenders. Collaborating with a mortgage broker can help in several ways. First, a mortgage broker will know the appetite of lenders, what projects they are interested in, and what the underwriter is likely to ask for. That is invaluable information. Secondly, it is almost always in the best interest of the borrower to submit an application to several lenders. Preparing a financial package tailored to each lender and the underwriter takes considerable time. A mortgage broker will guide and assist with the development of a complete financial package, identifying weaknesses and how to mitigate them and spotlighting favorable aspects of the project.
W Business Capital is expert at packaging proposals attractive to lenders. By tapping our wide network of sources of capital it is very likely we will find multiple lenders interested in your project. Contact us at 208-297-7794 to learn how we can help you secure the financing needed for your next project.