If you have ever contemplated trying some new food or delicacy and you've never heard if it has a nice taste or not, usually you won't dive right in, you'll take 1 or 2 small bites to see if you can eat it. It's the same way with applying for car wash loans or other sorts of commercial properties. Bankers don't want to bite all of it, they just wish to see enough to know if they like the transaction or not.
Many people who submit packages on commercial loans, whether it be the borrower, a mortgage broker or a commercial real estate agent supply far too much information initially or they do not present enough. If they present a disorganised package or a package with inadequate info up front, it doesn't give a lender a good feeling that the borrower knows what they are doing. It's good if they have all this information available but most lenders can look at a summary of a transaction to understand if they like the deal or not.
First, present an executive outline. This is basically an outline of what you are looking to do. You outline whether or not it is a purchase, refinance or construction project, how much you are looking to borrow, how much equity you are putting into the deal if it is a purchase or construction project, if there's any seller financing and who will pay for closing costs. In this executive summary you also outline your experience in the industry and if you know your credit history, you can present that also at that time. If you know when the last time the property was evaluated, state when the appraisal was done and how much it was valued for.
Secondly, you are going to want to prepare a use of proceeds. This is basically list of where where all of the proceeds will go. It logically needs to equal up to 100% of the total project costs. The total project cost isn't the purchase amount. The total project cost isn't total construction costs and land acquisition costs. Total project costs are the end costs of the project, including closing costs, inventory, working capital, etc.
Next, have your own personal financial statement (PFS) prepared to show a list of your assets and debts. Lenders will have a big interest in how liquid you are financially. Banks don't want to lend to borrowers who don't have acceptable non-pledged assets.
You can also present a resume but if you state your work experience in your executive summary sufficiently, it should not be mandatory initially.
If this is for a purchase or a refinance, you will need to present the last years financials and a current year to date profit and loss statement to show how well the business cash flows. Cash flow is king when it comes to commercial loans.
The Five C's of credit have not altered over the years.
Capacity
Capital
Collateral
Conditions
Character
By presenting the info above, this will answer most of the primary questions regarding the Five C's of credit and will give the bank a much better feel whether they want to take on your project.
Many people who submit packages on commercial loans, whether it be the borrower, a mortgage broker or a commercial real estate agent supply far too much information initially or they do not present enough. If they present a disorganised package or a package with inadequate info up front, it doesn't give a lender a good feeling that the borrower knows what they are doing. It's good if they have all this information available but most lenders can look at a summary of a transaction to understand if they like the deal or not.
First, present an executive outline. This is basically an outline of what you are looking to do. You outline whether or not it is a purchase, refinance or construction project, how much you are looking to borrow, how much equity you are putting into the deal if it is a purchase or construction project, if there's any seller financing and who will pay for closing costs. In this executive summary you also outline your experience in the industry and if you know your credit history, you can present that also at that time. If you know when the last time the property was evaluated, state when the appraisal was done and how much it was valued for.
Secondly, you are going to want to prepare a use of proceeds. This is basically list of where where all of the proceeds will go. It logically needs to equal up to 100% of the total project costs. The total project cost isn't the purchase amount. The total project cost isn't total construction costs and land acquisition costs. Total project costs are the end costs of the project, including closing costs, inventory, working capital, etc.
Next, have your own personal financial statement (PFS) prepared to show a list of your assets and debts. Lenders will have a big interest in how liquid you are financially. Banks don't want to lend to borrowers who don't have acceptable non-pledged assets.
You can also present a resume but if you state your work experience in your executive summary sufficiently, it should not be mandatory initially.
If this is for a purchase or a refinance, you will need to present the last years financials and a current year to date profit and loss statement to show how well the business cash flows. Cash flow is king when it comes to commercial loans.
The Five C's of credit have not altered over the years.
Capacity
Capital
Collateral
Conditions
Character
By presenting the info above, this will answer most of the primary questions regarding the Five C's of credit and will give the bank a much better feel whether they want to take on your project.
About the Author:
Harold Jaynes has been a consultant in doing gas station, convenience store, truck stop and car wash loans since the late nineties. To discover more about car wash financing, visit their website to learn more.
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