Business owners often ask what is needed to secure a commercial loan. The answer is not a one size fits all scenario. There are a lot of factors that contribute to obtaining a loan and hurdles that may come in to play throughout the process. Being prepared to furnish as many necessary documents as possible from the start can make the process smoother for both you and your lender, and it will lead to less back and forth.
Each type of commercial loan has a unique mix of documents needed to complete the loan application process. Commercial real estate loans, term loans for vehicles and equipment, lines of credit, as well as programs like the SBA loans and USDA loans all require different levels of documentation.
All of the loans previously mentioned require the basic information listed below:
Basic Information for Any Commercial Loan
Entity Documentation
Entity documentation includes company Bylaws, Articles of Corporation, Formation Documents, and Business Licenses. Although some items may not be required from the start, it is best practice to produce them for your loan officer early in the process to avoid any potential delays.
Business Tax Returns
Supply two to three years’ worth of your business tax returns. These offer details of the historical profitability of your business and the business’ likelihood of repaying the loan.
Personal Tax Returns
Provide your personal tax returns for the last two to three years. These help the bank determine whether or not the loan could be covered if the business does fail to repay your loan.
Personal Financial Statement with Statement Verification
A Personal Financial Statement is provided by the bank on a specific form unless you prepare one with an attorney or accountant on your own. Statement Verification would include bank statements for accounts outside of the bank you are working with, Investment Account Statements, and Brokerage Statement, amongst others.
Year-to-date Financial Reports
Year-to-date financial reports cover items such as a Profit & Loss statement or a balance sheet. Similar to business tax returns, year-to-date financial reports help the bank determine your business’ creditworthiness since the last tax return.
Commercial Loans for Real Estate
If you are considering financing to purchase real estate, you also need to be prepared to present the following:
Environmental Questionnaire
The environmental questionnaire screens for any possible environmental hazards associated with the property changing hands. Any possibility of contamination may lead to further inquiry into the environmental impacts of the transaction.
Deposit for Appraisals, Evaluations, and Environmental Reports
The bank will ask for a deposit to be used to cover the costs of any appraisals, evaluations, or environmental studies necessary for the transaction. Depending on the scope of the project, the cost of these may vary anywhere from $1,000 up to and beyond $10,000.
Purchase and Sale Agreement
Similar to securing financing for a home or car, you will need to provide the purchase agreement between the business and the property seller.
Rent Roll & Leases for Non-Owner-Occupied Real Estate
If your business manages a rental property already, you will likely need to provide documentation about your income from the property.
Lines of credit can require additional statements for accounts receivable, account payable, equipment listings, and inventory aging. An equipment listing can also be required if you are looking to purchase or refinance equipment, in addition to invoices with detailed information like VIN numbers, registrations, and titles.
SBA Loans are also great tools for business owners to use. These often require additional applications and paperwork. SBA loan process that is time sensitive, so meeting deadlines to supply your documentation is critical.
A banker will not expect that you have all the necessary paperwork ready for your initial meeting, as they will often need to collect additional information before they analyze the deal. Do not be surprised if you are asked to provide additional details or verification statements during the process.
A first-time commercial loan will always require more paperwork than subsequent loans. Each loan is unique, so the need to provide additional information is not uncommon. Always be prepared to answer additional pertinent questions and have patience with the process.
If you have any questions, or if you would like to apply for a commercial loan, feel free to reach out to the
Community First Bank Business Banking Team.
Cassandra Arey
Business Banker
