A Preapproval differs from Prequalification in commercial lending, in that the “Preapproval” is issued after a preliminary underwriting determination has been made. The buyer’s qualifications, and the data from the commercial property are combined to assess the risks versus the merits of the loan application.
Financial records on the business/property being acquired will be needed to determine that the Debt Service Coverage Ratio (DSCR) will comply with general underwriting guidelines after items such as depreciation, officer’s salaries, mortgage interest and certain non-re-occurring expenses are added back to the net profit/loss. A Preapproval will have issued conditioned upon certain events and due diligence has been completed. After all data from the borrower’s and the subject property is compiled and analyzed by one of our Commercial Loan Underwriters.
The following items will be required on the subject property before a Preliminary Preapproval can be issued:
- Three years of business Federal Tax Return
- Year to Date Balance Sheet/P&L
- For comparison purposes, Year to Date Balance Sheet/P&L for the same period for the prior year
- A detailed list of capital improvements made within the last five years
- Photos of the property or Web Address