How To Close Your Commercial Loan Quicker And Easier

Would you like to close your commercial real estate loan or commercial apartment loan quicker and easier? Well who wouldn’t. But as the old saying goes, “easier said than done.”

That is until you’ve read this article with some tips from Crefcoa’s own commercial mortgage loan underwriting team.

We give you some valuable tips that will help ensure your commercial loan or apartment loan closes is a smooth and timely manner.

What makes the biggest difference between a commercial mortgage loan that closes in a smooth and timely manner, and one that seems to drag on and on, with request after request from the underwriter for “more documents?”

Simply put, preparation. It’s amazing how simple some of these tips may seem, but what’s even more amazing is how many people fail to follow these basic guidelines when applying for a commercial mortgage loan.

Here are the basics you must follow if you would like your commercial mortgage to close in a smooth and timely manner:

• For investment properties, make sure you have available the two most recent years profit and loss (P&L) statements along with a year-to-date P&L and a current rent roll.
• Make sure your P&L statements identify any one-time or non-recurring expenses. If so, drop them below the line or provide a separate capital expense summary. This way the underwriter won’t include capital or non-recurring expenses in their NOI analysis of the property.
• Have some interior and exterior photos available for the property. If your lender isn’t local, they will want to get an indication of the asset quality before proceeding. A website for the property will suffice and actually enhances an underwriter’s view of the asset and sponsorship.
• Make any repairs (especially health and/or safety related) before the inspections. Most lenders will require any safety or health related items (loose railings, trip hazards, mold, old fuse boxes, etc.) be repaired prior to closing.
• Make sure your two prior years – both personal and business – tax returns are complete and filed.
• If you’ve filed an extension, have the extension readily available and make sure the extension is valid – not expired. Prepare year end financial statements as they will be needed since you are on extension and your most recently filed returns could be 18 months old.
• Sign your tax returns.
• Prepare a current personal financial statement and schedule of real estate owned. Your lender will be looking for liquidity, net worth, contingent liabilities and to see if any of your properties are operating at a loss.
• Gather your three most recent months bank statements – all pages.
• If you are applying to refinance your commercial mortgage loan, have available your payoff statement, survey, title policy, and insurance policy.
• If you are applying for a commercial mortgage loan to purchase commercial real estate, the sales contract must be valid. If the contract will expire prior to the closing of your commercial real estate loan, get an extension upfront.
• For investment properties, make sure all tenant leases are valid and make sure lease terms match what’s listed on the rent roll.
• Pull your personal credit report. Clear up any mistakes – if you have any derogatory items, write a letter of explanation and include it with your commercial loan package – do not try and hide any derogatory items, underwriters are human, they realize people make mistakes and look favorably towards a borrower that owns up to their mistakes.
• If the borrowing entity is an LLC or corporation, make sure it is in “active” status, i.e. active business license, occupational license, annual report filed, etc.
• Put you accountant and lawyer on notice that you are applying for a commercial loan. Inform them you will need up-to-date business and financial documentation. You will be surprised how many times a borrower will hear, “thanks for telling me, I was going on vacation for a couple weeks, I will prepare what you need before I leave.”
• Be realistic about the property’s value in your representations to the lender.
• Do not misrepresent or falsify anything on your commercial mortgage loan application, no matter how minor in nature. If discovered, it will raise a red flag with the underwriter and credit committee. Often times it can give the underwriter enough of a concern to decline the request. Whereas, if adequately disclosed and explained upfront, becomes a non-issue that the underwriter can work through.
• Do not, under any circumstances, order your own appraisal – it is a conflict of interest for a borrower to order an appraisal on their own behalf, as it could be seen as an attempt to influence the property’s value.

Well there you have it, some basic information that if followed, is sure to help your commercial loan close in a smooth and timely manner.