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  • Cal Crismore

Commercial Loan Documentation Checklist: Everything You Need to Before You Apply

What You Need to Apply for a Commercial Loan

If you're looking to take out a business loan, it's crucial that you understand the paperwork process. The best way to do this is by going through a commercial loan documentation checklist. This will help ensure that your application is as strong as possible and give you the best chance at being approved for financing.

Approaching lenders for commercial financing can be intimidated, but it's much simpler when you know what you're doing. Lenders aren't actually terrifying gatekeepers—they just want to make sure that borrowers are able to repay them. If you come prepared, they'll be more than happy to help you secure the capital you need.

Fortunately, lenders usually seek the same set of qualifications from borrowers. As a result, if you assemble your commercial loan documentation in advance, you will not only have a higher likelihood of knowing which small business loans you qualify for but also a less complicated time applying for them.

Part I: Commercial Loan Documentation Checklist Basics

The length and types of documentation required for a commercial loan will depend on the specifics of the loan being sought. For example, if you are looking for a business line of credit, your commercial loan documentation checklist will be much shorter than that needed for an SBA Loan.

There are a few requirements you should be aware of before applying for any type of commercial loan. All business lenders need basic documentation, so have these items readily available to present to the loan officer. Although there is no such thing as a "no document" business loan, some loans may require less paperwork than others.

1. Personal Credit Score

  • Though you're applying for a business loan, your personal credit score will greatly influence the lender's decision to give you money.

  • If you're responsible when it comes to your personal finances, chances are good that you'll handle the business' money responsibly as well. Business lenders use your credit score to get an idea of how trustworthy you are and whether or not they think you'll be a good candidate for a loan.

  • You don't have to specifically document this. Your lender can access your credit score information from one of the three personal credit bureaus they use. Although you don't technically need to put this on your checklist, it should be there because knowing your personal credit score is essential.

2. Business Credit Score

  • Did you know that your business has a credit score, separate from your personal one? This number is important because it will affect your chances of being approved for a commercial loan (or any other type of business financing).

  • Multiple factors affect your business credit score, such as credit utilization, length of credit history, and business credit card payments. However, the size of your company and risk factors specific to your industry also play a role. Additionally, different scales exist for measuring business credit, and additional bureaus—like Dun & Bradstreet—Track Business Credit exclusively.

  • In addition to your personal credit score, it would be beneficial to know your business credit score before applying for a commercial loan. Having both scores will give you a better chance of being eligible for the loan.

3. Basic Personal Information

  • In order to apply for a loan on behalf of your business, you'll need to provide some personal information, such as your name (or any other name you've ever used), address, SSN number, and valid ID.

  • The personal application process for an SBA loan is more in-depth than other loans. We'll go into more detail further down.

4. Basic Business Information and Permits

  • Before starting, gather your business' operating address, entity type, and employer identification number (EIN). If you don't know or can't find your EIN, look through other documentation or give the IRS a call. You might also need to apply for an EIN.

  • You’ll also want to have easy access to any business licenses and permits that you needed to open your business (lenders want to make certain you’re operating legally, of course). Perhaps this goes without saying, but make sure everything is up to date and valid before you add this to your pile of commercial loan documentation.

5. Two Years of Tax Returns, Both Personal and Business

  • The lender will verify the information you provided about your income and revenue by checking your tax returns. They will most likely ask to see both your business and personal tax returns.

Part II: Commercial Loan Documentation Checklist Financials

After you have assembled the primary commercial loan documentation, begin compiling the essential financial records.

These documents are central to the business loan application, and will be closely examined by lenders during underwriting to confirm that your business has the revenue, cash flow, and overall financial wellbeing needed to take on a loan while still being able to repay it.

We recommend working with your bookkeeper or accountant to get your financial statements in order before approaching potential lenders. They know your business finances better than anyone and can help present a comprehensive and accurate picture to loan providers. Keep in mind that it's easy for inconsistencies to stand out in financial statement, so only borrow an amount you're confident you can repay.

6. Recent Business Bank Statements

  • Many lenders will request to see your most recent business bank statements. However, did you know that your account balance can speak volumes about your financial aptitude as a business owner?

  • Most importantly, your statements will demonstrate to a lender whether you have the funds available to pay off a loan and still keep your business running. (This is key for seasonal businesses whose bank balances depend on the weather.) But that's not all—a lender can also get an idea of how responsible you are with money in general. For example, are you the type of owner who saves up for emergencies, or do you spend everything as soon as revenue starts coming in? Do you often have Overdrafts or NSFs (non-sufficient funds notices)?

  • Lenders will always request at the very minimum three months of bank statements from any potential borrower. To be on the safe side, you should have four or more documents prepared before meeting with a lender; each one has different standards, after all.

7. Profit & Loss Statement

  • Lenders will request your most recent profit and loss statement to verify your business's revenue in another way. You might also know your P&L as your income statement.

8. Cash Flow Forecast

  • Because cash flow is such a crucial marker of your business's financial wellbeing, the cash flow forecast allows lenders to understand how you believe the future will play out. Some lenders might request that you provide them with projections for 12 months down the line, while others may only want one or two month's worth of forecasting.

9. Business Debt Schedule

  • Lenders use Business Debt Schedules to better understand how your company plans on—or is currently—paying off its debts, including leases, loans, contracts, and other periodic payments.

Part III: Commercial Loan Documentation Checklist Specifics

Here are a few more items that you'll need for your commercial loan documentation checklist. Some lenders won't talk about them, but having these things on hand will be beneficial to you even if they're not required during your application process.

10. Use of Loan

  • The "loan purpose" is what you plan to do with the money from the loan, which is important for the lender to know. The funds must be spent on something related to your business. Additionally, some loans are only meant for specific purposes, like equipment financing.

  • The more specific you are about the purpose of your loan, the better. This way, both you and the lender can be sure that the amount of money you’re requesting matches up with what you actually intend to do with it. For example, if you’re looking for equipment financing, you’ll need to provide the lender with a quote for the equipment. If you want working capital, explain what kind of projects The post By Providing The Lender A Loan Purpose… appeared first on Get Paid For Your Writing.

  • If you can't answer this question with detail, it's probably not the right time to get a commercial loan.

11. Collateral Documentation

  • Collateral documentation is a list of items that you are using as security to get your loan approved. In other words, it shows the lender what you will use to pay back your debt.

12. Business Plan

  • Your business plan informs your lenders of your company's purpose, strategy, and the methods you will use to achieve goals -- whether your business is just beginning or has been running for years. This is vital for new businesses which don't have much for lenders to base their judgement on.

Part IV: Additional Commercial Loan Documentation for Real Estate Loans and SBA Loans

The commercial loan documentation is mentioned earlier in this article and it's great to have on-hand for your business loan application process. If you're going to be applying for any kind of real estate or SBA loan, though, you should really be prepared by gathering everything together beforehand. Here are a few extra notes specifically regarding those types of loans since they require even more paperwork:

Real Estate Loans

Lenders scrutinize commercial loan applications more closely when real estate is involved, whether you're buying a property or renovating one. For this reason, you'll need to provide more paperwork related to ownership, insurance, and other matters. Talk to a loan specialist first so you know what specific requirements your lender has--they vary from lender to lender.

Meanwhile, start gathering the following documentation for your commercial loan application:

  • Basic information on the parties involved (development company, management company, current owners, etc.)

  • Property deed

  • Purchase and sale contract

  • Information on any existing liens

  • Tax receipts on the property

  • Leases and/or rental agreements on the property

  • Photographs of the property

  • Proof of any required insurance

SBA Loans

The SBA loan program from the US Small Business Administration helps small businesses secure financing by partnering with small lending institutions. By partially guaranteeing these loans, the SBA makes loans more desirable for borrowers with features like lower interest rates and long terms for repayment of real estate loans —up to 25 years in the 504/CDC program.

Of course, the best financing options usually come with a few more steps or hurdles. In this case, it comes in the form of paperwork for an SBA loan. You may have to fill out several forms specific to the SBA, like SBA form 912 or 159, as well as provide additional personal information about yourself and your company equity investment.

Putting Together Your Commercial Loan Documentation Checklist

Although the amount of documentation required for each commercial loan varies, there is one main take away from this list: be organized. I know, it's easier said than done. However, if you have all of your ducks in a row for your application process, not only will you have a more realistic picture of your business financing options, but you'll also have better luck with lenders.

And what does that mean for you? More money, faster.

Avance Group; Your Local Mortgage Broker

If you're in need of a commerical real estate loan or have questions about the process, Avance Group is a local mortgage broker that can help you understand your loan options! Call us today at 817.524.6655 to get started!

Use our personalized checklist to help guide you!

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