With the tightening money in the residential sector, a number of brokers are entering the commercial loan market for the first time.  While it is a great market to be in, there is a learning curve, and packaging requirements are different than for a residential transaction.  Below I will outline a general commercial loan package and what you should be including.

The description “commercial loans” is blanket terminology for a wide variety of properties and transactions.  Each individual deal is going to need to be structured a little differently, but if you put together the following, you should have a good base to work from.  First off, is this a purchase or a refinance?  If a purchase, you will need the purchase contract and proof of deposit money.  If a refinance, you should have a copy of the existing loan statements and notes.

For the property, you should put together a section of your package to include a description of the property, including zoning, how many units/tenants, floor plan etc.  With the floor plan, you should also have a breakdown of the building into gross rentable area, net rentable area, parking, vacant space and size of the building and parcel it sits on.  Finally, include the most recent appraisal you have for the property and an overall description of any deferred maintenance or environmental issues.

Next you want to address the income aspect of the building.  You need a current rent roll, copies of all leases/rental agreements and at least 2 years of profit and loss statements, plus a year to date profit and loss statement.  You should also obtain a balance sheet for the operating entity, and if there is a property manager, a copy of the management agreement.  Finally, you should also get a projected cash flow for 3-5 years on the subject property.

Financials on the guarantor as an individual (even if held in a corporation or LLC) are also important.  A personal financial statement, balance sheet and last 2 years of tax returns should be collected.  In addition, you should take a basic 1003 and have a recent credit report.

Finally, you want to tie up any loose ends, if there is a tenant that occupies more than 10% of the net rentable space on a large building, you should ask for a financial statement for that tenant.  Often times you will also need a payment history for each tenant, up to 3 years.  A good breakdown on the maintenance costs is also a good thing to have.  It should be outlined on the profit and loss statement, but I like to also have copies of any contracts they have with the maintenance companies.

Once you have gathered this information, you should put together a clear and concise cover letter.  This cover letter should outline the current situation, the need for new financing, and the use of those funds.  You should also lay out very clearly the loan to value, net operating income, debt coverage ratio, debt service and pre tax cash flow.  Put together a table of contents so that your lender can find the supporting documentation in your package.

In putting together a commercial loan package, these are the pertinent items to have.  Having all of this information upfront will speed up the process, and help your transaction go smoothly.  If you are looking for a hard money commercial loan, this is still a good overview of what you should gather, although not all hard money lenders are going to want or need all of the information.  Additionally, you can often times obtain a hard money commercial loan without the debt coverage required by an institutional lender.

Hopefully this has been informative, if you are in the market for a commercial loan, please don’t hesitate to contact me directly.  Good luck!