What to Expect in the Commercial Loan Process


Commercial loans are different than residential lending loans. Below is the process and estimated time frame to complete each step. The most important part is when the bank asks for information that you are timely on the response as this is the most time-consuming part of the process.

 

Application Process__________________________________________________Estimated Time: 1 Day

On most commercial/business application the following information is needed. This may not be the complete list but in 99% of cases, this is what is required.

  • Last 3 years Business Tax Returns with (all pages should be included)
    • If you own multiple businesses over 20%, 3 years tax returns will be needed for each.
  • Current year to date profit and loss statement with balance sheet for the previous month.
  • Last 3 years Personal Tax Returns with K-1’s for all guarantors/owners with over 20% or more ownership.
  • Personal Financial Statement for each guarantor/owner with over 20% or more ownership in the business that is applying for the loan.

If Investment Real Estate, all the information above along with:

  • Current Rent Roll
  • Copy of all leases for the property
  • Purchase & Sale Agreement (if applicable)

If Business Acquisition all the information above along with:

  • Last 3 years tax returns of the business that is being purchased
  • Current year to date profit and loss statement with balance sheet for the previous month of the business that is being purchased
  • Asset list with value of each asset
  • Purchase and Sale Agreement

Initial Underwriting_________________________________________________Estimated Time: 2 Days

Once the banker receives this information, they will perform the initial underwriting to make sure that there are no immediate issues and at first site a deal that fits the bank credit culture.

Term Sheet/ Commitment                                                                                                          Estimated Time: 1 Day

Once the bank believes that there is a deal, they will bring to you the terms of the deal. This is your time to ask questions and come to a commitment on the terms to move forward.

(If Applicable) Appraisal/Valuation_________________________________Estimated Time: 2-3 Weeks

If real estate or a business is being purchased with the loan proceeds, an Appraisal or Valuation will need to be conducted. It is important to realize the differences between an appraisal and a valuation.

Commercial Appraisal: The bank will get the information on the property and get bids from 3-4 local appraisers in the area. This process can take 24-48 hours and we will let you know how much the appraisal will be. We choose the lowest cost with the quickest time to completion. In general, these appraisals cost about $2500-$4,000 based on the property type. This appraisal will usually give you the best and highest value for the property. For 99% of all purchase transactions an appraisal would be required.

Residential Appraisal: $850-$1,000

Valuation: A valuation is good for lower valued properties under $500,000 where the bank and the borrower are not concerned with a tight loan to value. Valuations are also used for secondary collateral. Valuations are not done by an appraiser but done by a real estate agent (AKA broker price opinion) these reports take about a week to complete and cost $150-$200 for residential properties and $850- $1,000 for commercial. It is very important to note that these tend to come in lower than expected and values tend to come closer to tax assessed value.

Bank Underwriting_______________________________________________Estimated Time: 1-3 Weeks

When the appraisal /valuation is ordered the banker then gets to work writing up the deal to present for approval. During this time the banker and the underwriter will ask questions about the financials, the property and other parts of the deal.

Also during this time, Title and property insurance is ordered along with Flood and Environmental reports are ordered and received.

Appraisal Review/Final Approval_____________________________________Estimated Time: 1 Week

After the appraisal is received by the bank the banker will review the appraisal and finish writing up the deal which then will present to the approver for final approval. At this time there may be additional questions/requirements. Once the loan is approved a commitment letter is prepared to give to you which gives you our final terms and conditions.

Loan Documents___________________________________________________Estaimted Time :1 Week

Once the loan is approved by the bank and the borrower, the bank will begin working on the loan documents. This process does take about a week as there are a lot of details that go into a commercial/business loan agreement.

Signing___________________________________________________________Estaimted Time: 2 Days

Once the loan documents are received by the lender, they will call you to schedule loan closing. This is done at a branch, title/escrow office or at your business location.

Closing____________________________________________________________Estimated Time: 1 Day

After the loan documents are signed it can take 24-48 hours for the loan to be booked and disbursed based on the type of transaction. At this point, you’re done, Congratulations!

As you can see from this a process for a commercial loan can take anywhere from 45-60 days depending on the complexity of the deal. Please work with your banker to set time frames and allow extra time for things that take longer than expected.  As much as we try for a smooth transaction, the reality is that things can come up and delay.