Traditional financing (Purchase or Refinance) will involve the following for success:

• • Good Credit Characteristics/History:  This means that your last 7 years credit history shows “on-time” payments. Minor glitches are permitted, but generally a credit FICO score of 650+ is required to get the attention of most traditional banking sources—in some case 700+ is the bar. 

    • Also included in a person’s credit evaluation is whether there are any liens, judgments, or anything that might impede someone’s ability to obtain or pass a clear and marketable title.

  • Stable Income Base:  The Lender’s underwriter (person(s) in charge of loan approval) will look at the last 3 years of income history.  This means that we will need to see the last 3 years of personal and/or corporate income history via IRS tax returns.  If the most recent year is under an extension, we will need a copy.  We must also review year-to-date statements to cover the interim periods. Year-to-date profit and loss (P&L) and balance sheets will be required.  In addition, a real estate debt schedule will be required.  You will be asked to sign an IRS form 4506 which allows the Lender to verify that the statements provided are what were submitted to the IRS.

  • Responsible Parties:  It will be necessary to see the aforementioned information on any signing party to the note whose interest is 20% or greater.

  • Property Appraisal: Once all of a borrower’s information is submitted and “approved” a property evaluation will be required.  This is to insure that the collateral has adequate value to support the intended mortgage.  If there is enough value in the real estate to support the loan there is no need for further evaluations.  If the value on the real estate is short of the sales price, it may be necessary to conduct a business-only appraisal (adding furniture, fixtures, equipment, good will, etc.)

  • History in Business: One of the main factors that will drive the success of a loan presentation is the executive summary.  The executive summary and/or business plan will cover many items.  Click Here for a helpful link

    • We feel that the most critical correlation must be your direct history in the related business. A key person in your organization must have direct related history in the business that is being commenced or acquired. In many cases, it is helpful if the seller is willing to stay on as a consultant during the transition period.

  • The Investment: The down payment (on a purchase or expansion) is typically a minimum of 10% for existing, and 15% for new construction.  It is common for the seller to carry a loan for a part of the purchase price. This may reduce the investment to the potential borrower and the risk to the Lender.

    • If you are refinancing your existing loan, all of the above would still apply but your “down payment” is actually your equity in the property (the difference between the true market value based on an appraisal vs. what you currently owe).