Commercial loans are low interest, long-term business purpose borrowings meant to provide entrepreneurs access to large amounts of capital. Such a loan is secured by the value of a commercial property and the interest rate can vary from 6.5% to 8.99 % depending on the chosen term and the credit score of the Borrower(s). Some of the real estate assets classified as commercial properties are: office centers, multi-unit apartment buildings, warehouses, retail premises, etc.
The extensive amount of paperwork required by bank institutions makes the process of applying and qualifying for a commercial loan look complicated and time-consuming. A reliable partner as an experienced loan broker can help you find the best financial solution for your business needs and assist you with overcoming the complexity of the heavy bureaucracy. To create a better understanding of the application/approval process of a commercial loan the key steps of the procedure are outlined below.
Step 1: Submit Your Initial Loan Inquiry – Form 1003. It is important to know what the main guidelines of the borrowing are and so firstly you should contact your loan broker who will determine your eligibility for a commercial lending based on your individual case. Generally, if any of the below is applicable for your current financial scenario you will need to consider alternative financial solutions:
- Credit Score: A credit score of 650 will qualify you for a commercial loan; a ranking of 680 or 700 will provide a better interest rate. If your FICO is less than 650, we recommend private money business loan is obtained instead;
- Missing Required Paperwork: For instance, if you have omitted filling your income tax return you will need to consider alternative financial options as Lenders request copies of filled 1040s;
- Location of the Subject Property: Institutional lenders are not willing to review an application if the investment property that secures the borrowing is located out of the approved lending zones. On the opposite, private investors are flexible about the location.
- Loan amount: The minimum amount a Lender will approve for a commercial loan is set at $ 100,000. If you need lower amount you may consider a private money loan – its minimum is $75,000.
Step 2: Pre-approval. If the initial screening determines your loan application qualifies you for a commercial loan, you will be asked to submit some of the following documents:
- Completed/Borrower Signed 1003 Form
- Purchase agreement (if applicable);
- Rent Roll;
- 2 years of Operating Expenses (if your business exists less than 3 years you will need to present a detailed business plan);
- Mortgage Statements;
- Certification of Occupancy/ Lease Agreements (if applicable);
- Valid ID of all Borrowers;
- 3 years of tax returns (company and personal for each Borrower);
- 2 months of Bank account statements (both company’s and personal of each borrower);
- Third-party Payments: Credit Report Fee and Appraisal Report
- Property Appraisal Report: You will need to fill a contact form/disclosure so appraisal of the subject property is arranged. Do not delay scheduling an appointment; your loan application will not be further processed until the requested report is submitted.
It is important that all requested paperwork is handled and submitted in a timely manner (usually 30 days after the pre-approval) or else, your application might be automatically dropped and you will need to start the whole process again from scratch.
Step 3: Underwriting. The submission package documents are to be carefully evaluated by the Lender’s underwriting team. A conditional loan offer specifying the approved amount/term/interest rate/prepayment penalty, fees, others of the borrowing is to be issued. Borrower needs to review, sign and return the loan offer if they agree on the conditions stated. Additional documents that can be requested prior to the final review/ approval of the loan are:
- Construction contract or a bid;
- Company Documents as Trust, LLC Articles of Incorporation, Business License
- Environmental Questionnaire, other disclosures.
Step 4: Final Review. A fully completed/ signed loan application followed by a sufficient submission package ensures smooth underwriting process and timely response. Once a full due diligence of the Borrower and the subject property is completed, the amount/term of the loan will be finalized. One last thing that will need to be taken care of before the loan documents are drawn and your loan is funded:
- Subject Property Insurance Policy – Lender will specify what policy coverage is sufficient
Step 5: Loan documents package After all of the pieces of the financial puzzle are put together, the loan documents will be issued and a notary appointment will be scheduled at your convenience. Shortly after, funding to a business bank account can be anticipated. The average closing time for a commercial loan is 45 days.
If you have any additional question on our current commercial loan programs or would like to receive a free consultation/ loan estimate, kindly contact Universal Commercial Capital.