Nuts and Bolts...of the loan process

What makes an underwriter approve a loan package? Most clients I meet for the first time have spent years, sometimes decades with the ability to walk into their local bank and sign on the dotted line for millions of dollars based upon the 'relationship' they have built up over the years. Since the market crash, many local and regional lenders are calling notes due, even those that have performed perfectly for 10-15 years without any prior late payments. The typical call we receive is from a disillusioned bank customer who just received 'THE LETTER' from their local loan officer informing them that their loan is no longer needed and they must find a new home for it elsewhere within 30-60 days.

Banks are liquidating perfectly performing commercial loans based upon the pressure from the federal government to empty their books that are heavy with mortgage debt in favor of stronger depository relationships. This leaves most borrowers out in the cold not knowing where to go since the vast majority of banks are following suit.

Since most business owners are not familiar with all of the 'nuts and bolts' that make up an appealing loan package, now is the perfect time to become more familiar with the loan process and prepare all of the necessary documentation . A loan package must fit a lending institution's present appetite, meaning it must appeal not only to the initial underwriter but beyond that, it must pass a board's approval for final lending authorization. A lender is looking for a few key things; good credit, DSCR, strong NOI and a seasoned borrower with a resume that speaks volumes about his experience, translated, someone who will consistently make that monthly payment. Ask yourself 'would you loan money to you?'

The first thing an underwriter looks for is a clean well-kept property. The borrower or realtor, if it is a purchase, must provide clear photos of the entry, alleys, lots, cell towers (if any), interior doors and long shots of the alley as well as two way street views leading up to the entry. If the photos aren't appealing to you, they won't appeal to the underwriter and first impressions are lasting, so make it count. I've received countless photos showing stray shopping carts littering the entry parking lot from the Quick Stop next door, unkempt flower beds, and trash cans overflowing. Again, clean it up. All those things are easily remedied at little if any cost or time involved. The lender understands if you need a rehab loan things aren't going to look like a five star park but try to make a good first impression.

Typically a lender will further require the property financials, including 3 years tax returns, a current YTD PnL (year to date/ profit and loss), and a current rent roll. Lenders understand that there are certain one-time deductions like painting all the buildings one year or replacing the security gates and will allow for that. They also allow for certain 'add backs' on an annual basis to offset the NOI (net operating income) so even if the tax returns don't show what you have netted previously, let a professional loan officer worry about deciphering the financial details and getting specifics worked out.

Another key piece of information is the rent roll on the subject property. Rent rolls don't need to show each tenant's name but they do need to include the unit number, rental amount and payment status. No hand written, yellow pad published, scribble, please...and yes, I have seen it all.

Although the borrower is required to use their credit score to show they are credit worthy, the park income will dictate the rate and term. A well-crafted industry resume goes a long way to getting that 'approved' stamp to brand your paperwork, so spend a few minutes illustrating your expertise in the industry and remember they have never met you. You may be purchasing a five star property with millions in liquid assets but the lender still wants to know who you are and what you have done in the industry. They are trusting you with their funds and want to be sure the handshake on the deal is a solid one.

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