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 and information, and I encourage you to reach out to them. Once you make the choice to work with a lender on financing a building for your business, expect to provide them with quite a bit of information during the application and approval phase.
The following is a list of the most commonly requested information, but don’t be surprised if they asks for additional items.
Company Financials and Tax Returns:
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 and in compliance with all loan requirements. Most lenders require at least three years of complete financial statements and tax returns, which will give them the ability to assess your company’s health, whether it is growing or shrinking and its ability to weather any potential storms.
Personal Financial Statement and Tax Returns:
Your lender will also want to make sure you (and any other owners of the building) 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 of your tax returns for the past few years. 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, giving them 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 and reasonable 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 they 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.
While it may seem like your banker is asking you for a lot of information, it’s important to remember that they aren’t just looking out for the financial institution’s interests, but yours as well. When it comes to something significant like financing a building, you and your banker are on the same team, and the banker is there to help you succeed. Be open to giving your lender the information they request, and knowing that doing so allows them to help you. It’s a great way to start things off on the right foot.
Elevations Credit Union is a member-owned not-for-profit financial institution serving Colorado’s Front Range. We believe it’s good business to help good businesses grow. 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.