Compiling Your Loan Package
|Copyright 2014 by Virgo Publishing.|
|By: David Smyle|
|Posted on: 11/01/2003|
The loan-approval process can differ from lender to lender, but one thing is consistent: First impressions are lasting. The key to any business meeting is the initial presentation, whether it be physical appearance or quality of information or both. The following is an outline of steps to take when applying for either a construction or permanent selfstorage loan.
The first step to take when preparing to apply for a construction loan is to do your homework. This involves hiring a company to perform a feasibility study, hiring an appraiser to perform an appraisal, or doing the feasibility work yourself. Simply stated, a feasibility study is relevant data in a report or outline format necessary for a lender to make a decision that would lead him to decide investing his money in the project is a good risk and profitable venture for his institution.
Always keep in mind a lender does not want to be your partner or co-investor. He wants to loan money out, earn a reasonable return on that money for the risk assumed, and be paid back in full without having to make additional capital investment or fundcost overruns. He makes that decision, in large part, based on the feasibility study or similar information provided. While there will always be exceptions to this norm, this is the prevalent banking practice. A feasibility study should contain the following information:
The above information, when professionally presented in a binder with tab separators and an index, can go a long way to impressing your banker. This is not to say you couldnít obtain a good loan without providing all the above. Every lender is different, and their level of information required will most likely vary. Of course, it goes without saying to maintain personal hygiene and dress appropriately when meeting with your banker. That does not necessarily mean a coat and tie— proper judgment should reign.
Permanent financing has many of the same basic information requirements to be presented to a lender; but the process is obviously more focused on the historical operations of the property and its historical occupancy when trying to peak a lenderís interest. The following is a list of items typically requested by lenders when going in for permanent financing:
When meeting with your loan agent or officer, have some specifics in mind about what you are looking for in your request. Do you require recourse, nonrecourse, prepayment flexibility, a long-term fixed rate, a long amortization, etc.? If you are not flexible in your loan terms, you will need to weed out lenders who may not be able to offer what you want. Then again, your request may not be available as presented. Be prepared to modify parts of your request if, after talking with several lenders or mortgage professionals, your requested terms are not realistic or available.
Permanent-financing requests are not necessarily as formal a process as construction requests, since the project is most likely stabilized and operating efficiently. The lender has less risk to deal with, since the project usually carries itself and, in many cases, the borrowerís financial position is not as critical. In fact, you may never meet your lender face to face if using an insurance company or conduit lending source.
Many permanent loans can be originated by phone, fax, mail and e-mail. Permanent loans may be nonrecourse, meaning the lender is only looking to the property for repayment of debt. Construction loans are almost always recourse, with borrower financial strength and experience being equal, if not more important, as the property.
In summation, keep good records, be detailed, and use outside professionals when necessary or appropriate to gather information and prepare the reports to be used in applying for a loan. Be clear about your financing goals and requests, and be likable. Remember first impressions!
David Smyle is president of Benchmark Financial, a commercial mortgage banker in La Mesa, Calif. For more information, call 619.465.6200 or visit www.benchmarkfin.com.