Arranging commercial financing

Question 1

qualifying

Answer 1

commercial mortgage is more complicated then residential it includes detailed application, supporting documents, lender review

Question 2

income

Answer 2

is key when qualifying lender carefully analyze business performance, profitability , revenue stability, supporting documentation, commitment letter

Question 3

business plan

Answer 3

when purchasing a well documented business plan and cash flow estimate are needed

Question 4

pro formula statement

Answer 4

financial analysis with business projection

Question 5

minimize lender risk? leverage ratio

Answer 5

-its a ratio to assess the ability to meet financial obligation by comparing debt ( liabilities) and asset.
- the higher the leverage ratio the greater lender risk

Question 6

minimize lender risk? debt service ratio

Answer 6

used to assess weather a commercail business can handle a certain level of debt service

Question 7

minimize lender risk? loan to value ratio

Answer 7

loan amount as a percentage of property value

Question 8

safety margins

Answer 8

lenders may institute safety margins to reduce risk when lending to differing commercial ventures and market conditions

• high debt service ratio- you require a higher income to qualify for a mortgage
• low loan to value ratio-borrower requires a larger downpayment
• higher cap rate - as the cap rate increase the value decrease

Question 9

lender documents? letter of commitment

Answer 9

set out the lender financing terms ( amount, rate, ect.)

Question 10

lender documents? letter of guarantee

Answer 10

the lender provides a promise of payment should the borrower fail to preform

Question 11

lender documents? letter of credit

Answer 11

there is different types, the bank established a specific amount that can be draw upon by the borrower

Question 12

letter of intent

Answer 12

the lender and borrow may broadly agree to a certain financing strategy