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Bridging the Gap: Are You Ready to Apply for a Commercial Loan?

Bridging the Gap: Are You Ready to Apply for a Commercial Loan?

Many business owners in need of commercial financing often find themselves unprepared to complete the loan application and undergo the loan approval process. Banks require a significant amount of financial and related information, as well as supporting documentation in order to complete the underwriting of a loan in order to gain loan approval. As a result, many business owners become frustrated when the process moves slowly – and it often seems as if there is a never-ending need for additional information and documentation.

However, by being prepared before approaching your lender, the loan approval process can go much more smoothly and a great deal of time can be saved between the point-of-loan application and final loan approval.  The key is to be ready and prepared!

Typically, lenders will request the following information from prospective borrowers:

  • The specific dollar amount of the loan request and intended uses of the loan proceeds
  • Supporting agreement(s) of sale, quotes, invoices, and a detailed cost budget
  • The legal name and address of the borrowing entity and details of the ownership structure
  • A detailed background and history of the borrower, operating company, real estate holding company and related business entities (as applicable)
  • A detailed business plan for start-ups, requests for significant expansions, and business acquisitions.
  • Four (4) years of federal tax returns of the borrower, operating company, real estate holding company and related business entities
  • If available, four (4) years of accountant prepared financial statements of the borrower, operating company, real estate holding company, and related business entities
  • Interim financial statements – dated within 90-days of the loan request – of the borrower, operating company, and related business entities
  • Four (4) years of Federal Tax Returns of the principal(s)/owner(s)
  • The most recent personal financial statements of the principal(s)/owner(s)
  • A resume or biography of the principal(s) and key management
  • The most recent personal credit reports of the principal(s)/owner(s) – (IFS recommends you find a credit reporting service that will provide a credit report to avoid numerous inquiries while searching for a lender. However, the lender, once identified, will order a personal credit report independently).
  • Current accounts receivable and accounts payable aging reports (as applicable)
  • A current inventory schedule – detailing raw materials, work-in-process and finished goods (as applicable)
  • Projections with detailed revenue and expense assumptions to support anticipated growth or start-up efforts

If refinancing business debt, be ready to provide an accurate and updated Debt Schedule for each individual loan. This should include:

  • Name of the lender
  • Original loan amount
  • Current loan balance
  • Original use of loan proceeds
  • Interest rate (fixed or floating)
  • Loan term and amortization
  • Loan maturity or expiration date
  • Monthly loan payment amount
  • Prepayment penalty information
  • A listing of collateral securing the loan
  • Personal guarantors of the loan
  • Copy of the borrower’s most recent monthly loan statement
  • Copy of any Promissory Notes

Most Lenders go through a comprehensive analysis of the information listed above in order to prepare the loan approval document(s) needed to gain internal loan approval. The time frame to complete this process can range on average from as quickly as five weeks to as long as 12 weeks – depending on the complexity of the loan request, and the nature of the due diligence required (such as real estate appraisals, environmental assessments, title insurance, etc.) to be completed by the lender in order to finalize all the conditions required for final loan approval.

By assembling the information above, the business owner will have gone a long way to ensuring their financing request is well-positioned to be promptly reviewed and, ideally, approved by the lender.

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