Open To Close: Navigating The Commercial Real Estate Loan Process
Borrowers, lenders, and their counsel rely on a loan closing checklist to keep track of documents that must be examined or prepared to finalize and close a commercial mortgage loan. This does not have to be a daunting or intimidating experience. The following are four steps to help you stay organized, prepared, and on track to support a quicker and simpler commercial loan closing.
Due Diligence Documents
Step 1. Organize all your documents that will be needed for due diligence. These include entity information, insurance policies, financial statements, guarantor information, and all property documentation, including leases, P&Ls, environmental reports, permits, and inspection reports. The more prepared you are, the smoother the process.
Provide Lending Criteria
Step 2. Provide your lender with an Executive Summary of the loan request and how the proceeds will be used. This includes the property address, property type, square footage, rent roll (as applicable), income and expense data, and purchase price. Based on this information, the lending team will discuss loan terms, which will be presented to the borrower for consideration.
Letter Of Interest (LOI or Term Sheet)
Step 3. If parties agree, a letter of interest (LOI) or term sheet is drafted. An LOI is a preliminary agreement that identifies and frames the loan terms agreed in principle between the parties. Later, detailed, definitive agreements will supersede this initial document. After both parties sign the LOI, the Lender will order an appraisal.
Legal Counsel
Step 4. The Lender will engage legal counsel to draft loan documents for review by the borrower and borrower’s counsel. Closing will be coordinated with escrow and title to manage all documents and record the loan.
| Avatar suggests that the borrower assemble an Executive Summary with a concise but thorough overview. Include the following information: |
Avatar encourages its clients to maintain open lines of communication throughout the process to manage any issues that may arise. TR Hazelrigg, IV, Co-founder, and President advises, “It is much better to lay out all of your cards on the table when applying for a loan. We have experience dealing with all sorts of scenarios, and the more transparent you are, the more likely we can get in front of an issue and help provide workable solutions.”
About Avatar Financial Group
Avatar Financial Group is a leading lender in hard money bridge loans, offering flexible solutions for nonconforming, income-producing real estate nationwide. Founded in 2003, the firm provides quick turnaround solutions for borrowers who do not have time to wait.
