Are you Borrowing Commercial Real Estate Funds?
Borrowing Commercial Real Estate Funds for your project? In Part 1 we discussed how important it is to help your lender to help you. How do you do this? Quite simply you articulate your needs in a clear fashion. Anticipate your lender’s questions and concerns. In Part 1 we discussed the Loan Request. You’ve indicated to your lender why you want to borrow funds. Now lets take a look at the next part of your story, namely the sources and uses of those funds.
Present the Sources and Uses of Funds
In clear and unambiguous terms, indicate where the money is coming from, and what the money will be used for. A lender needs to know, at a glance, the borrower’s financial program, and sources and uses is the initial important step.
A typical Sources and Uses table could look like the examples below, but its length and level of detail is largely dependent upon the complexity of the transaction. Don’t leave the lender guessing! If the equity is “borrowed” from another source for a purchase, ensure this is indicated. Provide sufficient detail on intended use of funds. If some cash is being drawn out (equity being “released”), be sure to indicate this. Equity release is not necessarily problematic for your lender, so long as the purpose of the funds is clearly articulated, and the particular lender’s loan to value ratio requirements remain within their guidelines.
Sample Sources and Uses for a Property Purchase loan:
|Best Bank of America 1st mortgage||$1,000,000||Property purchase price||$1,500,000|
|Vendor Take-Back 2nd mortgage||$100,000||Miscellaneous legal and closing costs||$50,000|
|Equity (cash)||$500,000||Immediate roof and parking lot repairs||$50,000|
Sample Sources and Uses for a Refinance loan:
|Best Bank of America 1st mortgage||$1,800,000||Retire Existing 1st mortgage loan with Liberty Loan Co||$1,745,300|
|ABC Equity Partners 2nd mortgage||$200,000||Appraisal Report||$5,000|
|Building Condition Report||$3,500|
|Release of Equity||$5,700|
In summary, be clear on where your funds are coming from. Be precise on how you intend to spend the funds. Your lender will appreciate the clarity of your presentation. Your ability to anticipate your lenders’ questions, by presenting your requirements in a concise fashion, will greatly assist you in obtaining the funding you require.