By Ken Bauer, VP of Business Banking at Elevations Credit Union
When considering whether or not to buy a building for your business, your banker can be a wealth of knowledge. Once you make the choice to work with a lender on financing a building for your business, expect to provide him/her with quite a bit of information. The following is a list of the most common requests.
Your Company’s Financials and Tax Returns:
You can be certain your lender will want to feel comfortable that the building’s main, or only, rent-paying occupant (i.e. your company) is capable of paying enough rent to keep the building maintained, up-to-date, and in compliance with all loan requirements. Expect the lender to require at least three years of complete financial statements and tax returns, which will give him/her the ability to assess your company’s health, whether it is growing or shrinking, as well as its ability to weather any potential storms in the future.
Your Personal Financial Statement and Tax Returns:
Your lender will also want to make sure you are able to support yourself, pay your mortgage and that you don’t live beyond your means. Expect to provide a PFS (Personal Financial Statement) with detailed information on your assets, liabilities and income, as well as every single page (not just the first few) of your tax returns for the past few years. You can be sure your lender will need any and all Schedule K-1s if applicable, so be prepared to provide those, too. Your lender will also pull your personal credit report, so make sure you sign and date your PFS and any accompanying addenda, which is what gives him/her the authorization needed to do that.
The Building’s “Pro Forma” Financial Statement:
This is basically a projection of the anticipated income and expenses of the building. It should show all rents received (income), plus all costs to maintain, operate and complete any necessary repairs or updates to the building (expenses), as well as service the loan for which you’re applying. Be accurate with your assumptions in this document, as your lender is sure to challenge anything that seems unlikely or underestimated. Being way off on your pro forma is a quick way to sour your loan application with the lender, as he/she will question whether or not you understand what it truly costs to own and operate a building.
Other Important Information:
Depending on the nature of the building, and whether or not you have tenants, your lender may also request copies of the leases currently in force, a detailed rent roll, historical financials on the building, and even a history of major repairs and maintenance.
When it comes to something significant like financing a building, you and your banker are on the same team. Be open to giving your lender the information he/she requests, and know that doing so allows him/her to help you. It’s a great way to ensure a positive experience.
Elevations Credit Union is a member-owned not-for-profit financial institution serving Colorado’s Front Range. With a consultative approach to solving your business banking needs, Elevations local business bankers can help you improve your cash flow, reduce your borrowing needs or decide whether a term loan or line-of-credit is best, including quick-turn credit decisions. Click here to learn more about Elevations business banking or schedule an appointment.