Commercial Business Mortgage Application Process
“A Commercial Business Mortgage Application Process Will Vary By Lender
And Lender Type”
The commercial business mortgage application process for a bank or institutional lender can be very different from a private mortgage lender.
First of all, a bank or institutional lender, by definition, is a low risk lender, providing prime plus interest rates in most cases. In order to commitment to providing a commercial mortgage, the bank or institutional lender must determine that the risk of loss is appropriate for their lending criteria.
In order to accomplish this, they take a look, in detail, at the security being offered, cash flow repayment, business model dynamics, balance sheet leverage of the borrowing entity, personal covenants in many cases for the owners of the business, credit of the business and personal owners and so on.
Step one in an institutional commercial mortgage is completion of a complete information package that can take some time to prepare as it typically will require the last three years of historical financial statements for the borrowing entity, current year interim statements along with all supporting sub ledgers and schedules, two or three years of projected financial statements including income statement, balance sheet, and cash flow all reconciled, a rent roll if the financing is on a rental property, and a business plan/business overview that accurately describes all the working parts of the business and how each may lend to profitability and business risk.
Once a complete application is submitted, an initial review will be preformed from which follow up or clarifying questions are likely to arise. This can result in requests for additional information that will need to be compiled or prepared and submitted to support the primary application.
If at this stage of the process, the lender sees the potential for providing a commercial mortgage, then a term sheet would be issued outlining the potential terms and conditions of a commercial mortgage facility.
If the applicant signs back the term sheet, then the outlined conditions would next need to met in order to get to the stage of a formal commitment for funding.
The conditions that typically will be required to be covered off at this stage include a third party appraisal from an AACI appraiser, an environmental assessment, and potentially accountant prepared year end or interim statement to bring everything up to date.
If everything checks out, then the lender will issue a commitment which will outline any remaining conditions that will need to be met and the borrower covenants.
All in all, this process is going to take at least 60 days and in many cases the time period will be even longer depending on the amount of time it takes to complete each step and get all the information requirements covered off.
In direct comparison is the commercial mortgage application process for a private mortgage lender.
While many of the same items are going to be required, a private lender is going to be more focused on the equity in the pledged security and the marketability of the real estate now and in the near future.
Cash flow repayment is going to also be important, but not to the levels required by a bank and institutional lender.
And if things like appraisals or environmental appraisals were completed in the last couple of years and readily available, these may suffice for the private lender’s purposes.
Because of the more streamlined process, a private lender commercial business mortgage application process is going to be at least 30 days from application to disbursement with some deals taking longer once again to the time required to complete conditions or outstanding information requirements.
Time, effort, and lender relevance to a deal are all key factors in the commercial property financing process.
Spending too much time and effort focused on the wrong lender can cause serious problems to the business or property owner if funding must be in place by a certain time.
On the flip side, working with too many mortgage providers can be a bad idea as well due to the amount of work that goes into assessing a deal.
The best approach for securing an optimal commercial mortgage in the time you have to work with is to enroll the services of an experienced commercial mortgage specialist to guide you through the process and get you focused in on the most suitable lenders for your requirements.
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About the Author Joe Walsh
I'm a Toronto Mortgage Broker that arranges mortgage solutions on residential and commercial real estate property. With over 30 years of mortgage financing experience, I'm able to quickly assess your financing requirements and provide relevant solutions for your immediate consideration. Joe Walsh Google+ YouTube Channel