Commercial Notes

Q. I have applied for a commercial loan at a bank in my town, and every time I call the loan officer to inquire about the loan approval status, she keeps asking me for more information. I still have not received a quote. What can I do to move this process along?

A. Your set of circumstances is very typical when an incomplete loan request package is submitted to a lender. It is one of the most problematic situations in the commercial loan approval process.

I do not know the circumstances surrounding your loan request, but I presume that you dropped off what you considered to be the required information for the lender to be able to quote and process the loan, but soon found out that there was additional information required.

When an incomplete loan request package is submitted, the lender cannot process the loan request and has to undertake additional effort to gather the missing information. This can lead to the loss of time and possible procrastination by the lender in seeking the additional information.

In preparing a concise loan request package, you will likely receive a prompt lender response, though it may be negative. A timely negative response from a lender is not a bad thing, since there are many lenders and different loans appeal to different lenders. Locating the most appropriate lender for the loan request will usually yield the best loan terms and conditions.

There are three primary loan product requests — acquisition, refinance or development/construction. Each one carries a slightly different loan request format, but here is a good example of a general multi-tenanted commercial loan request package format that Eaton Partners Inc. uses for both acquisition and refinance.

All loan packages should be assembled in a manner that will allow the lender to copy and disseminate the information as necessary. The various information components contained in the loan request should be listed in an index or table of contents and always be separated into sections.

Section I is usually the executive summary, which is a brief description and history of the collateral, its location and competition purpose of the loan and justification for the requested loan amount. The sponsors for the loan should be identified, including a statement of net worth and historic earnings. Who will manage and lease the collateral and a source and use for the loan proceeds also should be included.

It is critical that the executive summary be complete so the lender can read through it and clearly understand the loan request. All positive and negative aspects of the sponsors and the collateral should be identified.

Section II identifies the salient facts of the loan request, including various aspects of the collateral.

This section provides the lender with an easy to access “fact sheet” from which to draw information as he/she cross-references information within the loan request package.

Section III usually contains photographs depicting the collateral and the surrounding neighborhood and environment. Since many competitive lenders may not be located in the market that the collateral is in, the photographs must provide an adequate representation of the collateral condition and location.

Section IV provides the financial information about the collateral, which can differ depending on the type of collateral. We provide a minimum of three financial exhibits to support the amount of the loan being requested.

The first exhibit is a rent roll that will identify each tenant by name and location, the size of the space that the tenant occupies, the base rent and any additional rent a tenant pays and the term the tenant has and will continue to occupy the collateral.

The next exhibit is a summary of the operating history for the last three years, if available, illustrating the income collected and expenses paid out. If obtainable, a year-to-date and/or trailing 12-month operating statement should be provided.

Using the rent roll to project rental income and the historic expense information to project current expenses, an underwriting pro forma supporting the requested loan amount and requested loan terms is prepared as the final financial exhibit.

Section V contains the specific loan request, which should clearly identify the details of the loan requested, including the interest rate, term, amortization and any specific conditions being requested.

Section VI contains market area information about the demographics and comparable property within the market area where the subject property is located. The demographics and market information help support the rental rate, occupancy and demand for the collateral.

Additional sections are sometimes also added to the loan request package to provide supplementary exhibits, such as floor plans, site plans, aerial photographs and lease abstracts to further support the loan request.

A lender receiving a complete loan request package should have enough information to make an informed decision and respond quickly. We usually request a term sheet (loan quote) from the lenders within one week of submitting a loan request and expect to close the loan within six weeks of selecting a lender.

David B. Eaton, president of Eaton Partners, Manchester, manages the firm’s Commercial Mortgage Group. Questions can be submitted to him at Commercialnotes@eatonpartners.com.