I recently ran across a very competitive commercial construction loan offer from a bank to a prospective developer. You may find it very instructive.
Good morning, (Mr. Borrower): I have received your application from C-Loans, and from the information provided, it appears to meet many of our underwriting requirements for a commercial construction loan. A detailed list of the documentation that we would need to fully underwrite the loan is provided below. We generally provide construction financing at a rate of Prime + .5% for a term of one year with a .5% origination fee. We normally require the payment of interest on a monthly basis during construction. After completion of construction, should we provide the permanent financing for the project, a fixed rate in the 8% range is feasible based on today's rate environment for a term of 5 years, at which time the loan would balloon. We prefer to hold our commercial real estate loans to a 20-year amortization, but a 25-year amortization is possible provided the credit meets certain underwriting requirements. An additional .5% origination fee will be charged on the initial permanent financing. For subsequent renewals the rate will be based on the then market conditions, and we presently charge a minimal $150 fee for renewals provided no significant changes in the terms of the loan occur. However, I can not guarantee that that will still be our practice 5 years from now. Assuming that an architect is involved with the project, draws will be advanced upon the submission of the standard AIA Application and Certificate for Payment form completed and signed by the contractor and certified by the architect. If an architect is not overseeing the project, then arrangements will have to be made for someone else to make progress inspections and report to (XYZ Bank). We also require the unconditional personal guarantee of all individuals who own at least a 20% interest in the borrowing entity, or 10% if there are no 20% owners. An as-completed appraisal addressed to (XYZ Bank) will be required prior to the closing of the loan, and upon completion of construction the appraiser will need to certify to (XYZ Bank) that the project was completed according to the plans and specifications. (XYZ Bank) will choose the appraiser, and the appraisal fee will be included in the closing costs. (XYZ Bank) can finance up to 85% of the cost of the project or the appraised value whichever is less. Since you already own the land, we can use the appraised value for it giving you credit towards your equity requirement for any appreciation that has occurred. If these terms and conditions meet with your approval, I will need the following documentation to underwrite the loan. Documentation List: - Cost breakdown for the project
- Copy of construction contract for project
- Plans and specifications (A complete set of plans is not required - just a site-plan, floor plan and elevations will be sufficient)
- Organization documents (Articles of Organization, Certificate of Good Standing)
- 3 years financial statments and tax returns for LLC (If in existance that long)
- Pro-forma cash flow summary for project
- Personal financial statement dated within last 6 months and most recent tax return that is available for all guarantors
- Personal resume or informational profile for each guarantor
- Copy of warranty deed on property
(Mr. Borrower), if you have any questions concerning this information or need to discuss any of it with me I can be reached at (555) 555-7758 ext. 1620. This is not a commitment on behalf of (XYZ Bank) to make you a loan, but just and indication that we will consider making you a loan. I look forward to working with you to provide the financing that you need for this project. Sincerely, (Officers Name) Sr. Vice President (XYZ Bank)
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