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When clients provide you with this statement, read it and understand the numbers. Many times, clients will give you operating statements that include expenses unrelated to the property. Watch for these. Only income and expenses directly related to the property's operation should be included.
Ultimately, you'll be subtracting the expenses from the income to arrive at the net operating income.
• Personal financial statement: Clients should provide a current personal financial statement in case the lender asks for it. It may not, but it is always better to have this, if needed. This also spares you and your clients from continually having to provide more documentation for the loan.
• Tax returns: You may not need these either, but get them anyway. Request two years of personal tax returns from your clients and two years of business tax returns if the loan will be in the business name. Review the numbers. Again, don't just collect the documents and ship them out to a lender.
• Property-tax statement: You can get this online yourself to see the property's current annual taxes. Pay attention to who's on title. This can raise a whole new can of worms if you are not prepared.
• Mortgage statement: If you are doing a refinance, get a copy of your clients' current mortgage statement so you know the actual numbers you are dealing with for the payoff. Ordering a payoff early will alert you to large prepayment penalties that your clients might have failed to mention.
• Purchase agreement: Make sure it is signed and executed by all parties and that the names of your borrowers on the agreement match the names on your loan. Also, look at the closing date specified, and make sure you can accommodate it. If you can't, get a signed addendum to the purchase agreement. The date of the purchase agreement itself is important. If it is expired, it will be useless.
Confirm that the only thing being financed is real estate and that no business equipment is thrown into this document. Unless you are doing a U.S. Small Business Administration loan, you should be financing the real estate only.
• Corporate documents: If the loan will be in the name of a business entity, you will have to prove that your clients' business is legitimate. Ask for articles of incorporation and a current certificate of good standing.
• Property photos: Take photos yourself if you are near the property; otherwise, have your clients take them and e-mail them to you. You can get shots from some of the map search engines, but they will not be as high-quality or as up-to-date.
This list is not comprehensive, but it's a start. Other items you generally need to provide include insurance contact information, a driver's license, Social Security card and business cards.
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The documentation aspect of commercial financing is tedious, and you must have the patience to deal with it or work with someone who does. If you are just getting your feet wet with commercial loans, it can be beneficial to work with a more experienced individual. That way, you can learn the ropes and get several loan closings under your belt before attempting the process on your own. Otherwise, you stand to lose a lot of money in commercial financing if you make mistakes.
Overall, getting to know every inch of your loan file will prepare you for intelligent conversations with lenders and will speed the approval process for your loans.
Tami Athens is president of Commercial Loans R Us LLC, a commercial mortgage brokerage in Minneapolis. For more than 20 years, she has dedicated her time and talents to helping business-owners and entrepreneurs achieve their goals. She is a published author, speaker and former business-television-show host. In addition to her work in commercial finance, Athens founded Women of Wealth USA, an organization for self-employed women.
Contact her at email@example.com or (763) 503-7333.
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