Tips for submitting an optimal small-commercial loan package

An important step in building credibility and expediting the lending process
The new face of small-balance commercial is built to make everything from loan submissions to closings easier and more efficient than traditional commercial lending. Many residential brokers are finding success as hybrid brokers by offering small-balance commercial loans. Whether you're new to commercial or have already diversified your product mix, you'll find that attention to detail when assembling the loan package makes a big impact on the transaction. Submitting a complete and accurate package is important in cementing a professional relationship with lenders, building your credibility and closing loans faster.

Perception is reality with lenders when it comes to your commercial loan application. Proper presentation of a loan submission not only establishes your standing at the onset of the process, it also demonstrates your commitment to the transaction. A well organized, complete loan file that is properly stacked and tabbed for the specific sections will differentiate your level of professionalism from that of other brokers. Your file is likely to receive preferential treatment from a lender when compared to those that are submitted as disorganized.

Keep in mind, too, that missing information or incomplete documents within a package can quickly affect your rapport with the lender, not to mention delay the process. The importance of complete and accurate documentation cannot be stressed enough.

While submission requirements vary by lender, a complete small-commercial loan package in general should include:

Loan application
The full application needs to be completed at the time of submission. Omitting information, then adding it in subsequently indicates a lack of control over the borrower and the transaction. The application should be verified for accuracy and consistency with other documentation that is provided, such as ownership entity, borrower's income, borrower's assets, subject property address, property occupancy and income, employment, assets, purpose of financing, payoff amounts, terms of the purchase and sales agreement, and credit.

Rent roll
The rent roll should include all rental information concerning tenants of the property. This includes the name of each tenant, square footage occupied, monthly rental amounts, term of the lease, operating expense escrows and scheduled rent increases.

If you're not familiar with a rent roll, ask your lender for a multi-tenant rent roll and certification form or similarthis should be available online or by request.

A schedule of all tenants in the building documenting occupancy status, the rent roll includes:

-Tenant name
-Unit number
-Size of the space being rented by each tenant
-Lease term
-Rent amount
-Expenses the renter is responsible to pay (gas, electric, utilities, etc.)
-Number of bedrooms/bathrooms (as applicable by property type)
-Current occupancy status
-Schedule of all tenants in building, documenting occupancy status

The broker is responsible not only for providing a completed rent roll, but also understanding how it affects the transaction. For instance, if the start dates of the leases are subsequent to the financing, this is a fairly good indication that the transaction is either a construction loan or that the stated occupancy is not accurate. This important detail will impact the available financing options, as some lenders do not offer construction loans.

Rents must also be in alignment with market value. Most lenders utilize market levels for their underwriting guidelines. Normalizing the rents allows for the recognition of the upside in rent value for those that are below market. On the flip side, above-market rents need to be brought in line to properly reflect the true economics of the lease. For example, if rent is listed as $1,000 per month but the market supports a lower monthly amount, most lenders will use the market value. In cases where a variance from market exists, an explanation must be provided. Below-market rents often indicate either mismanagement or deferred maintenance that needs to be corrected before an upward adjustment can be made. Conversely, rents that are substantially above market may point to ghost renters or non-arm's length leases.

Purchase and sales agreement (if applicable)
The agreement should be in full force and effect, as well as not expired. If expired, provide an extension addendum that permits sufficient time to secure financing on the transaction. The contract itself needs to be complete and verified for accuracy. The purchaser(s) listed on the sales contract should match the borrower(s) on the loan application, and the property address on the contract must match the application. Finally, ensure that the sales price and financing terms on the contract match the application. Disclose any concessions granted within the contract.

Operating statements and tax returns of the property, and borrower's tax returns
At a minimum, include year-to-date operating statements on the subject property plus those from the previous two years. In addition, two years of tax returns for the property (if the borrowing entity is a corporate entity) and for the individual borrowers are necessary.

Interior and exterior photos of the subject property
The old saying that a picture is worth a thousand words definitely applies in this case. Photos give your lender a feel for the physical attributes of a property. Be sure the photos in your loan package are actually of the subject property (it may sound inane, but you'd be surprised).

Documentation specific to property type
In addition to the above, certain documentation may be required for various specialty commercial properties such as automotive, hospitality, restaurant, gas station, mobile home park and healthcare facilities. Ask your lender or account manager about additional requirements for these property types.

Being educated on the steps involved for submitting a complete loan package shows dedication and professionalism. Ask your account manager or look to online resources that can help you understand each commercial property type and its corresponding documents. Understanding these details, as well as taking full advantage of what you can learn through professional organizations and lender-sponsored trainings, can help solidify your position as a serious commercial mortgage broker.

Mike Boggiano is senior vice president, national sales manager for Silver Hill Financial LLC, a national commercial real estate lender based in Miami. He may be reached by phone at (877) 676-1562 or e-mail [email protected].