Loan Process, Where to get started? Looking for a basic rundown on how the process works a generic overview. I know things are different depending on location/type of property but any info helps!
Hello Everyone, Looking for advice on how to get started with funding. If I need to secure funding for a commercial property/business what steps do I need to take to get started? Is the loan made out to the LLC? Or is it strictly married to the person that is applying for it? What things are taken into account for a commercial property loan?(personal credit, w-2 income?) As you can tell I am very new to the commercial loan process and looking for a general guide as to what is needed to get approved, would greatly appreciate any information that you guys can provide. Thank you.
[{"id": "h90v5x4", "text": "Call a commercial mortgage broker.", "replies": [], "depth": 1}, {"id": "h90vzzj", "text": "This is a very high level overview and I'm gonna assume this is a typical non-construction CRE loan:\n\n\\- Could be either the LLC or to the person (Sponsor). Typically the LLC for legal reasons although you, the sponsor, will likely be asked to provide a personal guaranty.\n\n\\- CRE loans are structured by banks to have three sources of repayment: (1) Lease cash flow (2) Sale of the collateral (3) Guarantor/sponsor support. So, they will want to see 2-3 years tax returns for the property (if available), current rent roll, proforma cash flow, and copies of executed leases at the minimum. They will order an appraisal on the property for underwriting purposes, to verify the value of the property, and to set a supportable loan amount based on the loan to value (LTV), as most banks will only lend up to 80% of the appraised value of the property. They will also request 2-3 years of personal tax returns, ask you to fill out a personal financial statement of your assets and liabilities, and pull a credit report on you. They will also likely ask for liquidity verification, which will be 2-3 months of bank statements.\n\n\\- When underwriting, they will want to see that the underwritten cash flow of the property can cover the proposed debt service at a minimum of 1.25x debt service coverage ratio. Depending on the size of the loan and size of the bank, they may or may not place an annual covenant requiring that the property maintain that level of cash flow during the course of the loan.\n\nThe length of the process will depend on the bank.", "replies": [{"id": "h98njpn", "text": "Thank you, this indeed is a very high level overview and appears to hit most points.\n\n- So all three forms of repayment are considered jointly in order to be approved, for example if the property is Coming up short on its lease cash flow you can substitute it by showing your personal income that hey if anything I can cover the payments out of pocket. Reason I bring up this scenario is - the property that I am looking at has been sitting empty for about one and a half years but i am confident with my business that I aim to owner operate can generate the cash flow to satisfy the property payments plus more. If this makes any sense. Thanks!", "replies": [{"id": "h98ocmg", "text": "I detailed the three sources of repayment to help you understand why banks will be asking for certain items. You do not need to \"hit\" on all three for approval. Realistically, the Bank will underwrite to the strength of the lease cash flow (debt service coverage ratio) and their collateral position (LTV). If a guarantor is weak, that risk can be mitigated  by the strength of the other two. \n\nSo, this sounds like you are purchasing a vacant building and plan for your business to take up 100% of the gross square footage, correct?", "replies": [{"id": "h98ozga", "text": "That is correct", "replies": [{"id": "h9cyxyz", "text": "Then, I assume, you'll set a separate LLC to hold the property for tax/legal/accounting reasons. The LLC will lease the property to the operating company on a triple net basis. The loan process won't be much different; however, they will likely ask the operating company to guarantee in addition to or in lieu of your personal guarantee and they'll request business tax returns and company prepared financial statements for the operating company. All of this is pretty standard.", "replies": [], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "haxj26w", "text": "If it\u2019s a stabilized cash flowing property and the loan request is over ~$3m then you can get a non-recourse loan. The leverage will depend on the property type, location, tenant, etc. If you do go the non-recourse route, then you won\u2019t need W-2s or personal credit (the lender will run a credit check but that\u2019s to make sure you haven\u2019t had any foreclosures, bankruptcies, etc.).", "replies": [], "depth": 1}]