Setting Your Business Up for Commercial Loan Success Starts with the Right Documentation

Securing a commercial loan for your business can often be a pivotal step toward growth, but the process can be cumbersome, even for the most seasoned business owners. Before taking the steps to apply, understanding what is required before, during, and after the process can set you up for success.

Before You Apply: Building a Comprehensive Loan Package

The preparatory phase lays the groundwork for loan application success. Lenders are looking for a holistic view of your business’s financial history and the personal financial standing of its guarantors. Beyond the documents, be prepared to discuss why you need the loan, outline your business goals, and demonstrate your financial discipline.

Business Documents

• Financial Performance: Lenders want to see both a high-level view of how your business is functioning now and how it has been operating in recent years. These documents may include your balance sheets, income statements, cash flow statements, or internally prepared statements.
• Previous Tax Returns: Lenders typically require three years of complete federal tax returns. If the most recent year’s tax return is not yet available or on extension, provide additional internally prepared financials. If an extension was filed for your most recent return, provide the filed extension form.
• Business Formation and Legal Documents: Proof of your business’s legal standing including articles of incorporation, operating agreements, business licenses, and your Employer Identification Number.
• Business Plan and Projections: A well-articulated business plan, especially for new ventures or significant expansion projects, should detail your market analysis, strategy, and financial projections, outlining how the loan will be utilized and repaid.

Sponsor or Guarantor Documents

• Personal Tax Returns: All individuals guaranteeing the loan must provide their personal federal tax returns. Similar to business returns, lenders typically require three years of complete federal tax returns.
• Personal Financial Statement: This document should include a detailed summary of the guarantor’s assets, liabilities, and net worth. Verification of liquidity is typically required.

During the Loan Process: Diligence and Ongoing Reporting

Once your initial application is in process, the underwriting team begins its due diligence. During this phase, be prepared for additional requests as the lender works to fully understand the risk profile of the loan request and completes their financial analysis.

Commercial Real Estate (CRE) and Construction Loans

• Rent Roll: For income-producing properties, a current overview is required. It should detail all tenants, lease terms, rental rates, and any leases set to expire within the full term of the loan.
• Pro Forma Analysis: For entities being formed to acquire or develop a property, a proforma cash flow analysis is needed to project future income and expenses.
• Construction Project Details: For construction loans, lenders typically require a detailed project budget, construction plans, and a Sources and Uses Statement that outlines where all funds are coming from and how they will be spent. In these instances, borrower equity into the project is typically expected to come prior to bank financing.

 Traditional Commercial & Industrial (C&I) Loans

• Accounts Receivable and Payable Aging: For working capital lines of credit, lenders need recent accounts receivable and payable aging reports. These documents help them understand your cash cycle.
• Work in Progress Reports: Where applicable, a work in progress report may be requested to understand the backlog of work for the borrower.
• Debt Schedule: A comprehensive list of all current business debts, including balances, payment amounts, and maturity dates, will be requested.

After the Loan is Funded: Maintaining Financial Health and Compliance

The relationship with your lender does not end once the loan closes. Commercial loan agreements contain covenants, or terms, that require ongoing financial reporting to ensure the business remains financially sound.

• Annual and Quarterly Reporting: Most commercial loans require you to submit annual financial statements and tax returns. Depending on the loan’s size and risk, lenders may also require quarterly internally prepared financial statements.
• Compliance Certificates: You may need to periodically submit a compliance certificate. This is a document signed by a company officer certifying that the business is following all loan covenants.
• Ongoing Information: Lenders have the right to request updated information, such as new rent rolls or updated personal financial statements from guarantors, throughout the life of the loan to monitor performance and mitigate risk.

Each part of the loan process is built on financial transparency and trust with your lender. Maintaining organized and accurate records before, during, and after the loan process can increase your likelihood of securing funding and build a stronger relationship with your lender and financial institution. At WSFS, our Commercial Associates are here to guide you along every step of your journey, connecting with one of our experienced lenders advisors to guide you through the process and set you up for the long-term success for you and your business.