Capital Max | Complete Checklist for Commercial Loan Documentation: Comprehensive Guide for Applicants

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Commercial Loan Documentation

Following through with a commercial loan documentation checklist will help you streamline your loan application process. It provides a detailed breakdown of the information you need to avoid last-minute scrambling to collect missing documentation.

If you’re applying for a business loan, you need to prepare for an intensive paperwork process (particularly for SBA and real-estate loans). This article gives an insight into everything you need to apply for a commercial loan.

Understanding Commercial Loans Before Applying

Commercial loans are funding arrangements between a business and a financial institution or lender. Most commercial and business loans are for funding major capital expenditures or operational costs, expansion costs, and other business expenses.

Types of Commercial Loans

Before applying for a commercial lending loan, you should get familiar with the different types of credit available. Here are some of the most important ones:

Lines of Credit

Lines of Credit (LOC) is a credit product that lenders offer their customers. This type of credit is available for both individual customers and businesses alike. However, before getting this loan, customers need to qualify for approval. In most cases, the limit on the LOC is dependent on the creditworthiness of the borrower.

Commercial Mortgages

Commercial mortgages are a type of term lending, primarily for commercial real estate. The underwriting technique for this mortgage varies, depending on the state of the property. If the property is owner-occupied or an income-producing investment property, they both have more flexible terms compared to other types of commercial loans.

Term Loans

Term loans are for acquiring non-current assets, which include equipment, furniture, and vehicles. These types of loans typically reduce with periodic payments, and the repayment period aligns with the useful life of the underlying asset being financed.

Capital Leases

Capital leases (also known as finance leases) are for financing non-current capital assets like equipment. The major difference between a term loan and a capital lease is that the equipment finance firm supports the lease and retains the legal title of the physical asset.

What You Need Before Applying for a Commercial Loan

Before applying for a commercial loan, you need to understand that lenders aren’t gatekeepers. Contrary to popular belief, lenders want your business to get the commercial financing it needs for success. Once you get all of the requirements right, you’re one step closer to getting funding.

Below is a list of some of the basic requirements (we will provide a detailed breakdown of each of these requirements and more):

  • Your legal business name (prepare to identify your business type)
  • Contact information (may include business address and mailing address)
  • Personal information of business owners
  • Description and cost of equipment (if applicable)

Commercial Loan Documentation Checklist (Personal and Business Information)

The commercial loan business documentation you need to provide depends on what you are seeking. For example, the commercial loan documentation checklist for a business line of credit is shorter than that of an SBA loan.

Below are some of the basic documentation you will need to provide. Most of these documents involve personal and business information.

1. Personal and Business Credit Score

Even though you’re applying for a business loan, lenders prioritize checking the personal credit score of the business owner. They believe your personal credit score is a strong indicator of how you intend to manage business finances. You may not need to provide any documentation for your credit score, but it helps to be aware of it before applying.

Similar to the personal credit score, your business credit score is another important loan-granting determinant for lenders. Factors that influence your business credit score are the length of your credit history, business credit card payments, and credit utilization.

2. Key Personal Information

Be ready to provide some personal information when applying for your commercial loan. Some examples of these are:

  • Your full name
  • Address
  • SSN
  • Valid means of identification
  • Date of birth

3. Primary Business Information

Below are some of the business information you need to provide when applying for your commercial loan:

  • Business operating address
  • Entity type
  • Employer identification number (EIN)
  • Business licences used in opening your business

4. Two Years of Tax Returns

An important part of your loan application process is verifying your income and revenue. To do that, lenders review your tax returns, typically for two years. You may also submit other types of proof, such as payslips and employer references.

Commercial Loan Documentation Checklist (Financial Information)

Once you have your personal and business information sorted, you can begin to gather important financial records. You’ll need these records for the business loan underwriting process. The lenders will evaluate your documents to ensure you have good revenue and impressive financial health to sustain the loan.

Here’s a checklist of financial information you may need to provide for your commercial loan:

5. Business Bank Statement (No Later Than 3 – 12 Months)

Most lenders will request a recent business bank statement. The recency of the bank statement can vary, depending on the lender. Some ask for three months, while some are comfortable with 12 months old documents. Regardless of the timeline, all lenders need to know is if you’re the kind of business owner who keeps a good amount of emergency funds or if you have lots of overdrafts or non-sufficient funds (NSFs) notices.

6. Forecast of Cash Flow

Your cash flow forecast helps lenders see what you think about your business’s future. Depending on the lender, you may need to prepare a cash flow forecast of two months, 12 months, or 24 months.

7. Business Profit and Loss Statement

Lenders may ask for your most recent profit and loss (P&L) statement to verify your business’s profit and loss trends. Your P&L statement is different from your business bank statement – the initial captures the profitability of your business operations, while the latter only shows the flow of funds through your business account.

8. Business Debt Schedule

Your business debt schedule gives insights into how your company pays off or plans to pay off debts. This debt schedule contains a detailed repayment breakdown for leases, loans, contracts, and other types of debts.

Commercial Loan Documentation Checklist (Other Specifics)

There are other commercial company loan documentation that lenders may ask for. But most of them aren’t as common as the first eight in this checklist. You should still consider getting them together during your application to stay prepared.

9. Use of Loan

“Use of loan” or “loan purpose” explicitly shows what your business will do with the funding it gets. It helps the lender confirm that the amount you’re requesting matches what your business needs. For instance, loan purpose is commonly used in equipment financing, where you provide the lender a quote for the equipment and the types of projects you intend to tackle.

10. Collateral Documentation

Collateral documentation simply shows what you plan to use as collateral to get your loan approved. Depending on the lender’s terms and conditions, collateral could be a car, home, business real estate, or equipment.

11. Business Plan

Some lenders ask for a business plan to know the current and future state of your company. A business plan helps them know if you’re just starting out or if you’ve been in business for a long period. Try drafting an excellent business plan if you don’t have a ton of track record for lenders.

Commercial Loan Documentation for SBA and Real Estate Loans

If you’re applying for an SBA or real estate loan, the documentation process could be a little more intensive. Here’s what to expect for each loan type:

SBA Loans

One of the advantages of SBA loans is their low-interest rates and long commercial real estate loan repayment terms — some ranging from 15 to 20 years or more. However, SBA loans are paperwork-intensive. Since SBA loans aren’t like other short-term loans, you need to get proprietary forms like the SBA Form 159 or the SBA Form 912 alongside your personal information.

Real Estate Loans

Most lenders typically need more paperwork before giving commercial loans in real estate. Apart from all of the basic documents and personal information, you may need to provide other documentation relating to ownership or insurance.

Here’s a sample list of documentation you may need to include in your checklist:

  • Information on the parties involved (current owners, management firm, development firm, etc).
  • Property deed.
  • Proof of required insurance.
  • Tax receipts on the property.
  • Leases and rental agreements on the property.

Final Steps Before Submission of Commercial Loan Documentation

Don’t get overwhelmed by the number of requirements on your checklist. Instead, you should take some time and organize each of them. Take note of the documentation you currently have and begin to work on those you can’t provide. Remember, the more detailed and organized you are, the higher your chances of getting a loan.

Capital Max provides commercial real estate financing and other loan advisory services. If you’re ready to secure your commercial loans, explore our creative financing solutions at Capital Max. You will also get expert assistance in navigating the loan documentation process.