What a lender-ready loan package looks like

The test: can a lender decide in fifteen minutes?

A commercial lender reads a new request to answer five questions.

1. What is the loan: how much, for what, secured by what?
2. Who is borrowing, and who stands behind them?
3. How does it get repaid?
4. What is the collateral worth against the loan?
5. Is there anything unusual?

If the first page answers all five, the lender can decide whether to spend an hour on the rest. If the lender has to assemble the answers from forty attachments, the package waits.

What a lender can decide quickly: whether the loan is a kind, size and place it handles; whether the numbers are in range; whether to ask for more.

What it cannot decide quickly: the loan itself. That takes verified financials, a credit memo, a decision by whoever has authority, an appraisal and the other reports. No package shortens those. A clear one keeps them from starting late.

Part 1: the one-page summary

One page, in this order:

• The request. One line: kind of loan, purpose, amount, collateral, location.
• Sources and uses. A small table.
• The property or the business. Three or four sentences.
• The numbers. Loan to value, debt service coverage, and for investor property the debt yield, with the inputs shown.
• The sponsor. Who owns the borrower, their experience, net worth and liquidity in round figures.
• Repayment. Primary source, and the fallback.
• Anything unusual. Said plainly.
• Timing. A contract closing date or a maturity you are refinancing.

The deal summary builder prints this page from a form.

Part 2: sources and uses

Worked example (hypothetical). An investor is buying a small warehouse for $3,000,000.

Uses		Sources
Purchase price	$3,000,000	Bank loan	$2,100,000
Roof repair	$120,000	Buyer’s cash	$1,080,000
Closing costs and reports	$60,000
Total	$3,180,000	Total	$3,180,000

The two columns are equal. The loan is 70 percent of the price ($2,100,000 divided by $3,000,000) and 66 percent of total cost ($2,100,000 divided by $3,180,000). Net operating income is $245,000. At 7 percent on a 25-year schedule the payment is about $178,100 a year, so coverage is 1.38 ($245,000 divided by $178,100), and debt yield is 11.7 percent ($245,000 divided by $2,100,000).

Those four figures go on the summary page with their inputs. A lender who sees the arithmetic does not have to redo it to trust it.

If sources and uses do not balance, nothing after it will be believed.

Part 3: the borrower and the sponsor

• The borrowing entity’s legal name, state and type
• An ownership chart down to every person with 25 percent or more, and anyone who controls the entity
• A paragraph on each principal: what they have owned or run, for how long
• A personal financial statement for each proposed guarantor
• A schedule of real estate owned and of other businesses
• A list of loans each principal has guarantied

The 25 percent line is not arbitrary. Under 31 CFR 1010.230 a bank must identify and verify the beneficial owners of a legal entity customer, and that includes each individual who owns 25 percent or more of the equity interests. The bank will ask for those people’s details at closing whatever your package says, so show the ownership clearly at the start.

Part 4: financials

• Three years of federal tax returns for the borrower or the operating business
• Year-end financial statements for the same years, where they exist
• A current interim statement, and the same period a year earlier
• For property: a rent roll, a trailing twelve months, and two or three years of operating statements
• For a business: receivable and payable agings where relevant
• Projections only when history does not support the loan, with the assumptions written down

On projections, lenders follow a common rule that NCUA’s commercial lending regulation states outright for credit unions: a borrower-prepared projection is required “when historic performance does not support projected debt payments,” and it “must be supported by reasonable rationale.” A pro forma with no basis is worse than none.

Looking for a lender now? Find lenders for this in your state.

Part 5: the debt schedule

One table of every loan, line, lease and card the borrower and each guarantor owes: lender, original amount, balance, rate, payment, maturity, collateral, and whether it is guarantied. See debt schedule.

Lenders compare the schedule with the tax returns’ interest expense and with a credit report. A loan that appears there and not on your schedule becomes a question about everything else. It also feeds the global cash flow calculation.

Part 6: property or business documents

These depend on the kind of loan. Use the checklist for yours:

• Owner-occupied commercial real estate
• Investor commercial real estate
• Small balance multifamily and larger multifamily
• Construction and residential development
• Business line of credit and equipment
• Farm
• SBA 7(a) and SBA 504

Part 7: third-party reports

You do not order these. The lender does, after a term sheet.

Under the FDIC’s appraisal rule, 12 CFR 323.3, an appraisal by a state certified or licensed appraiser is required for real estate-related transactions unless an exemption fits, and the exemptions include commercial real estate transactions of $500,000 or less. Where an exemption fits, the bank must obtain an evaluation. Either way the bank engages the appraiser.

What you can include: reports you already hold, such as a prior appraisal, an environmental report, a survey or a property condition report. Label them with their dates. They help the lender scope and price its own.

What to hold back until asked

• Anything with a Social Security number, a date of birth or an account number. Send personal tax returns, personal financial statements and bank statements only after a lender replies, and by the secure channel the bank provides. Never by open email.
• The full file. A first package that runs to hundreds of pages buries the summary.
• Other lenders’ term sheets. Say you are talking to others. Share terms only when a lender asks and you choose to.

Holding back is about security and order. It is not about hiding. Every material fact belongs on page one.

Make it tie

Before sending, check:

• The loan amount is the same on the summary, in sources and uses, and in the email
• Rent on the rent roll equals rent in the leases
• Income on the trailing twelve months is close to the latest tax return, or a note says why not
• Every debt on the returns and statements is on the debt schedule
• Every entity in the ownership chart has documents in the file
• Every figure on the summary has a document behind it
• Files are named for what they are, with the year

Use the calculators for the sizing checks

• DSCR calculator: coverage from income and payment.
• Debt yield calculator: income over loan.
• LTV and LTC calculator: loan against value and against cost.
• Maximum loan calculator: the largest loan under each test.

A lender’s minimums for these are in its loan policy and are not published. The calculators show where your loan sits. Whether that is enough is the lender’s answer to give.

Want a person to check the public record for your deal? Request financing from The Lender Report’s operator. A person replies by email, usually naming lenders that have made loans like yours. It is free, it covers business and investment property loans only, and nothing is sent to a lender.

What the public record can and cannot tell you

The public record tells you which lenders to send the package to: those large enough, holding loans of your kind, lending where you are. It cannot tell you what any one of them wants in a package beyond the core. Ask each lender for its own checklist once it shows interest, and follow it exactly.

Questions to put to the lender

• Do you have your own checklist for this kind of loan?
• How do you want sensitive documents sent?
• Which numbers on my summary would you compute differently?
• What is missing that you will need before a term sheet?

General information, not legal, tax or credit advice. A lender's own policy decides what it will do; ask it for the policy in writing.