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Commercial Loan Processing Explained
It is important to understand the process behind commercial loan processing to gain an
insight into how a financing institution assesses and decides on whether or not a loan is
granted. While commercial loans provide an attractive source of income in terms of
interest, lenders exercise a lot of care in evaluating borrowers to ensure that funds lent
out are recovered along with the earnings.
Applying for a Loan
Lenders basically pre-qualify potential borrowers by assessing their background and
capacity to pay. The process starts by initial gathering of background and personal
information such as purpose for the loan, your income and existing debts. To formalize
and commence the loan process, you must then fill-up and complete a loan application
Due Diligence Process and Reason client pay pre-closing fees.
Understanding the due diligence process
Due diligence is the process www.citiprimegroup.com goes through when evaluating
whether they want to fund your opportunity. This can take many forms and can range from
“relaxed” due diligence to “tight” due diligence. With the real estate market in the worst
state since the great depression, we are leaning more toward the “tight” side of the
spectrum. So you need to understand what due diligence may encompass:
-Legal review of documents related to your property
-Credit and background checks on you the sponsor
-Physical “on-site” inspections
-Detailed review of the title and property survey
-Review of historical operating statements
-Detailed review of your prospective business plan for the property
-Conducting feasibility studies
-Review of all required entitlements, permits, licenses and approvals
-Insurance reviews, Escrow, processing, underwriting and application fees
-Environmental assessment report (i.e. Phase I and II reports)
-Third party structural and engineering reports, includes Attorney cost.
As you can see, their is a lot that goes into a CPG due diligence. Keep in mind, this is just
an example of what a prospective lender’s due diligence could entitle. Costs may range
from $5,000 – $250,000 or more depending on the complexity of your deal.
1- Borrowers/Brokers use our Company for conference calls, underwriting, file
structure, loan approvals so they can leverage position with banks and sellers, and walk
away once LOI is issued, costing our firm over $900,000 (2012) in lost wages, reports,
commissions, and potential earnings.
2- Client walks away at the last minute, after we invested 2-3 months underwriting,
due diligence, processing out of pocket for our firm, generally cost: $7500 per borrower.
3- We have to pay our Loan processors, Investors, attorney, escrow/title and
underwriters. Loan officers work commission only, and so if the client does not pay
processing and underwriting fee, then we can’t cover our cost to do business.
4- We only collect fees, if we have a viable file and there is an 80-90% chance of
funding. We carefully review the full file to ensure can do the deal, prior to engaging the
client or opening escrow.
5- Fees are required to work on the file, structure. Our underwriters spend countless
hours working on tough/high risk files and negotiating terms with Investors. and the
customer can walk in the 11th hour.
6- Many customers are shopping, hidden agendas, lies, and are less than honest,
this makes our closing ratio lower, as low as 30%.
7- We don’t guarantee funding, but once we approve the file we have a 99.9% closing
ratio, funds are escrowed and use for purpose of third party reports. Client can generally
expect to pay between $1500-$18000, Depending on the project size, required reports,
loan amount, and total amount of borrowers.
8- We don’t lie or provide false hope to customers, if the deal is not doable, we do not
engage the customer and waste our time.
9- We are paid at closing, but files must be properly structured, and we work with the
right Investors, Lenders, Underwriters, appraisals to ensure we will have a 100% shot at
funding on time.
10- We provide a “refund clause” in all loan contracts, LOI, and guarantee honest
working relationship with our Borrowers
11- We are not the unethical brokers/Investor collecting fees with no funding
solutions; these guys (Kennedy’s/Remington’s) are ruining the industry, and create a bad
name for the honest, hard working Brokers/Lenders.
12- We worked with thousand of clients and Investors, and arrange funding for many
difficult projects, and this would not be possible without the customers trust, cooperation,
and due diligence. Thank You
Requirements to Expect
Take note of the documentary requirements that will go with your loan application. This
may require some consideration and time to gather. A business loan for example, may
require a business profile that gives a general background of your business. In addition,
a business plan that clearly describes how your business will be run and how it is
projected to perform financially will be required.
Standard requirements for different loan types will include personal financial statements
listing all personal assets, liabilities, as well as your personal tax return for the past three
years. Another fundamental requirement is collateral. Collateral for a loan may include
assets such as real estate and stocks or bonds, hard goods such as equipment, and
other personal assets and guarantees. This is meant to give the lender some guarantee
that you will be committed to seeing your loan repaid. It also offers assurance that should
you fail to meet your loan obligations, they can recover from your assets the money that
they have lent out.
Processing Your Application
A loan officer will review your application and documentary attachments. Your loan officer
will review your credit reports, collateral documentation, as well as your income
information. Some additional documentation may be requested in order to support the
information in your loan application so that all details may be properly assessed and
Once all documentary attachments are deemed satisfactory, your loan application will
then be submitted to a loan underwriter or a loan committee. They will review, assess,
and eventually decide whether your loan will be approved.
At this time a processor will present you with a letter of intent or term sheet for signing.
This document includes the amount of financing, terms of payment, type of security or
collateral, and other key terms. The decision to approve or reject is usually made within
five days. Expect some requests for you to provide additional documentation during this
You will be required to sign the letter of intent and along with it, you may be asked to give
a check to serve as a deposit, and to pay for some third-party reports used in the
underwriting process such as appraisals.
Finally Getting Your Loan
Once all the conditions and requirements are satisfied, the loan application package is
resubmitted to the loan committee for final approval. Upon loan approval, you will be
required to sign the final loan documents. If you have a closing agent (an attorney or
escrow company representative for example), they will receive the closing documents
and coordinate the signing of all necessary papers. They will also coordinate the transfer
of funds, record the deed transfer and mortgage, and order title insurance.
With all requirements met and all closing documents in order, your loan can finally be
released! This can be done in several ways - electronic wire transfer to your designated
account, or issuance of a cashier’s check or draft in your name.
Apply For Commercial Loans using our FREE Commercial Loan Application to compare
rates and contact a CPGLoan expert. We have over 300 commercial real estate lenders,
business and construction lenders as well as private equity groups waiting to help you.