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[C848]Commercial Loan Application Form

by Richard Heaney, Ric

Commercial loan applications are often rejected because of some problem in the documentation or some other reason. While this rejection does throw the business plans off-track for the applicant, it also makes it difficult for the borrower to approach other lenders since each rejection is recorded in the credit history and this is first thing a lender checks.

More often than not, rejections happen due to problems in credit history or documentation. Besides, an application can also get rejected if the business idea is a little too unique for traditional commercial banks even if the borrower has furnished satisfactory documents and his/her credit history is clear of any problems.

This article lists some of the most common reasons for commercial loan application rejection and provides a check list and some questions which must be asked before filing an application for a commercial loan or commercial mortgages.

Reasons for commercial loan application rejection

Reason # 1: The business plan is not up to the expectation and satisfaction of the loan officer or loan underwriter. The solution is either to go to a commercial loan lender who does not require a business plan beforehand or prepare a thorough one by taking help of professionals.

Reason # 2: The tax return throws up something which runs contrary to the rules and regulations of the business mortgage lender and shows a red flag to the loan underwriter. This "something" may be, in most cases, insufficient net income or some expense item or anything which plants a seed of doubt in the mind of the loan officer or loan underwriter. The way out is to pre-recognize the problem and keep a satisfactory explanation ready.

Reason # 3:

The business a borrower is involved in and is asking the loan for falls under the category of businesses most traditional banks will not include in their business lending portfolio. Bar/restaurant properties, auto service businesses, funeral homes, camp grounds and churches are some examples of such businesses which often do not find support from traditional lending institutions. The only solution for such borrowers is to look for lenders who deal in such businesses.

Reason # 4: In the case of refinancing a current commercial mortgage, banks usually cut the amount granted and place restrictions as to where the loaned funds may be deployed. This is not exactly the denial of a loan but since the required amount is not given it is equivalent to declining the loan.

Reason # 5: Lack of adequate collateral is one of the major reasons for denial of a commercial mortgage. Remember banks will not approve a commercial loan until or unless it is covered by adequate security. The adequacy of collateral depends upon the risk as perceived by the lenders.

The checklist

The following documents are absolutely necessary if you don't want your loan application to be rejected. These documents help bankers make an informed decision about your business and its capacity to repay the loan amount.

# Income tax returns and other personal financial statements such as bank statements for the last three years
# Financial statements such as Profit & Loss and Balance Statement pertaining to the business in question for last three years
# Projected cash flow statements for the next 12 months
# Collateral sheet
# Well written business plan

Whether it is the expansion of the existing business or the start of a new business, a commercial property loan helps businesses acquire real estate such as land to set up manufacturing plant, office space, space for staff quarters etc. Much like a home mortgage, the property purchased is held as collateral against the loan.

However there is a major difference between commercial mortgages and home mortgages. While home mortgages are relatively easy to obtain, commercial mortgage approval requires a thorough scrutiny of the papers, credit report and financial viability of the company and of the location, condition, and viability of the property you're interested in buying.

A solid business plan and careful evaluation of the property are essential for getting approval for a commercial property loan. Here is how you can improve your chances of getting approval for your commercial property loan application.

Choose the right property

The characteristics of the property are the first crucial aspects any lender would scrutinise. So choose a property which is legally clean, situated in a good location, has all the required environmental approvals and is in good condition.

Take the help of your real estate agent to evaluate foot and vehicle traffic, zoning regulations, and previous uses of the property.

Prepare for the application well

There will be minute scrutiny of all the papers you have submitted along with the application. Hence prepare detailed financial reports, including balance sheets, tax documents, and sales records, to show the overall health of your business.

Following is a discussion of some basic aspects of what are considered as well-prepared documents:

• Keep your income tax returns regular and complete. You would need to furnish at least the last two years' tax returns. So they should be complete in all respects.

• If you have applied for an extension, make sure that you have the extension ready and it has not expired.

• In case of an extension, complete the year end financial statements in all respects.

• You would need to provide your bank statements for the last three months.

• In case you are looking at refinancing your commercial property loan, you would need to furnish your pay off statements, survey, title policy, and appraisal to the lender, so keep them ready.

• Prepare and produce the costs of building the new facility, staffing, and insurance, as well as contingency plans in case you fall behind your goals.

• Get your latest personal credit report and in case of any negativity, clear it or have a valid explanation incorporated. Do have the documentary proof to back the explanation ready.
Choose the right lender

Since the terms and conditions including the interest rate will differ from lender to lender, it is important to approach a lender who will not only fulfil your requirements, but will also offer attractive interest rates and easy terms and conditions.

A good pointer is the experience as a lender and proven successful businesses as references. Brokers can be of great help as they are networked with most of the lenders providing commercial mortgages in the UK.

Also, a good and experienced lender usually helps the borrower to hunt for a good property and prepare the necessary papers. Plus, the lender should be willing to guide you through the process of gathering information and applying for your commercial property loan.

Article Source : Kansas City Mortgage Refinance

Richard Heaney has sinced written about articles on various topics from Finances, Mortgage and Finances. Richard Heaney is a writer on business and finance. He specializes in writing on financial planning, ,. Richard Heaney's top article generates over 1600 views. to your Favourites.