Present Your Loan Request with Confidence
You have identified a building you want to acquire, or perhaps you own one already. You require new or replacement financing. You’re about to approach a lender, but you don’t really understand the steps. It all seems a bit mysterious to you. You’re certainly not alone. Many real estate investors are unsure of the commercial real estate lending process. Yet the loan consideration and approval process is not particularly difficult. Present Your Loan Request with Confidence once you understand the process. Let’s take a closer look!
The basis upon which a lender will provide your property financing, is two-fold:
i) you’ve got the financial strength, capacity and expertise to effectively own and manage the property, and
ii) the property generates sufficient cash flow, which repays the debt.
Substantially all of the lender’s activities are aligned with confirming these two distinct, but connected points. Namely, the borrower’s creditworthiness, and the property’s inherent value.
Your lender’s primary responsibility therefore is to substantiate that the borrower, and the property offered as security, taken together, meet the lender’s guidelines. This lender review, not surprisingly, is called, respectively, property underwriting and borrower underwriting. Together, they represent the loan underwriting. This loan underwriting is the activity that takes place after receipt of your loan application and supporting information. It ultimately yields a decision on the part of the lender.
What can you do to positively influence this underwriting process? The key is to prepare a persuasive loan presentation package. This will greatly assist a lender in reaching a favorable decision on your loan request.
Help your Lender help you!
You’ll want your lender to respond quickly and favorably. Learn to think like your lender. Anticipate your lender’s needs, in a loan presentation package, you’ll be well positioned for success!
The loan presentation package can take any number of forms. It is for the most part, a business plan for your property.
The presentation package, which is your plan, will describe your property; discuss its location as well as the characteristics of the market within which it is located; provide detail as to the property’s income generating capabilities; and finally, will detail the ownership of the property, as well as the owner’s financial capacity and real estate experience.
The detail you provide your lender, will be entirely dependent on both your comfort in assembling the information, and the complexity of your property. A loan presentation for a triplex with 3 residential tenancies will likely be less complicated than a presentation for a multi-storey office tower with a dozen or more retail and commercial tenancies.
Your Property Business Plan
Let’s consider the basic format:
1) Loan request details.
Clearly indicate the loan amount required. Your lender needs to understand the sources and the uses of the funds requested.
2) Property Description and Location
The commentary should be brief, but specific. Reference the property location relative to centre of the community, but also its proximity to major thoroughfares and public transit routes. As well, make specific reference to the neighborhood. Comment on its relative outlook for continued popularity, value appreciation, and demand.
3) Financial Summary
Provide your the lender with the cold hard facts. It will enable them to make an informed decision based on the property’s present and anticipated leasing characteristics, and existing and anticipated (stabilized) cash flow.
4) Borrower Details
Within the Borrower Details section provide the borrower’s complete legal name, as well as a description of its legal form, if not obvious by name.
If a Limited Partnership or Joint Venture, clearly provide details as to the ownership structure, beneficial ownership, and proportionate share of ownership. This includes identifying the General Partner as well as the Limited Partners. If a Joint Venture, who are the partners? What share do they each hold?
The principal(s) of the borrowing entity should be clearly identified, as well as their proportionate interests.
Within the Ownership/Sponsorship section of the loan presentation package, provide your financial statements and supporting information as well as personal net worth statements, credit reports, and personal biographies, attesting to your expertise, experience, and track record.
You’ve got the knowledge!
The commercial real estate loan process can be complex and intimidating for new participants and seasoned investors alike. You now have the knowledge required, as well as the ability to complete a comprehensive and well supported commercial loan presentation package. This will enable you to not only obtain the financing you require, but on terms advantageous to you!