Required Documentation for Commercial Property Loans

Commercial loans require certain documentation at application. The commercial lender is reviewing ability based on the cash flow of a property to support its loan. Many commercial loans have stringent underwriting guidelines and more documentation requirements.

General Documentation

General documentation will be required, no matter which type of commercial property you are financing. This includes color pictures of the property along with an appraisal. Also, an executive summary that explains the location of the property, the loan request and the borrower's resume detailing relevant experience owning and operating that type of commercial property. The executive summary is your property's first introduction to the lender. Well written executive summaries increase the chances of generating interest from commercial lenders.

Property Information

The commercial lender will first look at the commercial property to make sure it can cover the debt placed on it. They do this by applying a debt coverage ratio, which is an income multiplier.  The lender will usually require the cash flow from the commercial property cover at least 1.2 times the debt placed on it.  

For example, if the loan you're applying for carries a monthly payment of $1,000 the lender will want to make sure the property has a net positive cash flow of at least $1,200 per month ($1,000 x 1.2). To confirm this, the lender will require the borrower to submit detailed financial statements for the property, including a current rent roll showing all income from each unit. The lender will also require historical rent roll statements and returns, usually for the last 24 months, to show that property is stable and has run efficiently.

Third Party Documentation

Some lenders require documentation that must be ordered from parties other than the borrower, or the property itself. These forms are called third party reports. In most cases, third party reports are limited to title and insurance information. Lenders will require clean title so they may have a clean lien placed on the property once the loan is made.  

Because most commercial properties are held by corporate entities and used for business purposes, the lender will require additional commercial insurance be placed on the property. A borrower will have to show proof of acceptable insurance before a commercial loan can close.

Maximum Lending Terms

In addition to debt coverage ratios, commercial lenders have maximum loan to value ratios. Most traditional commercial lenders will max out at 80% loan to value, or LTV. The most common methods to determine property value is the appraisal.  Commercial loans will require an appraisal be done within 30-60 days of loan application. An appraisal is not typically ordered until the loan has received a conditional approval from an interested commercial lender.

Lender requirements vary, so make sure you have the ability to collect all the required documents before applying to that lender.