Documenting Commercial Land Loans: Satisfying Lender Requirements

Don P.

Taking out commercial land loans helps your business acquire land necessary to build factories, plants or buildings. These loans are necessary for businesses looking to expand or acquire additional property. They require a lot of documentation to demonstrate to the lender that your business has the ability to pay the loan back.

Required Documentation

Documentation that is typically required in order to satisfy a lender’s requirement includes:

  • Tax returns for two years
  • Cash flow statements, typically audited financials
  • Statement of income and expenses
  • Bank statements
  • Plant and equipment listing
  • Information on land being purchased, such as rents received
  • Legal business documents, such as incorporation forms

The lender may have additional requirements for documentation depending on the type of commercial land loan that you are seeking. It is a good idea to contact the lender directly and ask for a list of specific requirements so that you can gather the correct documents.

Financial Information
Tax returns are generally required for all types of loans. The lender uses this information to verify the company’s earnings. Cash flow statements and a statement of income and expenses can show the lender both past and future earnings potential of the company, as well as determine the financial viability of the company.

Bank statements reflect current balances and verify that you have a current banking relationship, which may be required by certain lenders. A bank statement can be matched with the cash flow statement and show how the company manages its expenses and income as it is earned and bills are paid.

Plant and Equipment Inventory

An inventory of all of your business’s equipment and physical plant helps the lender determine your land needs. Also, the lender will evaluate the amount of loan necessary to meet your ongoing business requirements. This listing provides details about the company’s physical plant, the equipment it uses and how it may be impacted by the acquisition of additional land. The inventory should contain details about each piece of equipment, its usage, depreciation schedule and cost relative and fair market value.

Purchased Land Information
Information on the land being purchased gives the bank an idea of the property being acquired and any land use issues or concerns. This can include an environmental impact statement, outstanding liens or tax information and description of any minerals or other natural resources.

Use a checklist to keep track of all requirements that the lender will need to keep yourself organized. The list of documents can get long and complicated, so be well prepared.