Obtaining Financing for Small and Mid-size Businesses
Author: Cliff King
Published: September, 2008

Somewhere along the way your company will probably borrow money. There are a few things every business owner should know before starting the process…
" Commercial loans have become increasingly more complex to place with lenders.
" The most knowledgeable and prepared borrowers are the most likely to achieve their borrowing goals.
" In most cases small and mid-size companies (SMB's) turn to commercial lenders and their brokers to provide the expertise needed.

In today's highly scrutinized and regulated mortgage climate, lenders are increasingly looking out for their investors. This makes finding the right lender - borrower relationship more difficult than in any time in recent decades. Despite this complexity, there is substantial money available for properly prepared and qualified borrowers. As such, borrowers should learn how to successfully proceed in today's complex markets. This article will serve as a primer outlining the steps, some principles, and business terms that are common in many types of business loan transactions.
Step 1 - Ask Questions:
Asking basic questions of the lender or your broker prior to starting the loan process can help save valuable time and increase the chances of completing a successful loan transaction. The best starting point is to learn general information about the lenders you are soliciting for your business… are they a direct lender or broker, how long in business, are upfront fees charged, are references available, length of time to issue a Letter of Interest (LOI), length of time to issue a Letter of Commitment (LOC). Additionally, you will need to ask what is expected of the borrower. In order to receive accurate answers to these, the lender will need information.
Step 2 - Be Organized:
Lenders have strict guidelines for determining their ability and desire to make loans and typically utilize an underwriting department for this process. Established guidelines vary based on the loan type, thus obtaining a summary of these guidelines upon initiating a loan request will provide insight as to whether your loan request and your credit worthiness meets the lender's requirements. This step should be completed before proceeding with the loan process. A commercial mortgage broker can help review the guidelines and provide a checklist and support to help with the preparation of the preliminary documents needed.
Step 3 - Prepare for and Request a Letter of Interest:
All lenders will provide a contingent position on whether they can provide your loan, prior to issuing a final commitment. This "soft commitment" will come in the form of either a Letter of Interest (LOI), or a Contingent Letter of Commitment (CLOC). A lender can make this determination with a minimum amount of documentation. The basic information should be summarized on a single page "Request for Terms" from the borrower supported with a few additional documents prepared by the borrower once committed to 'shopping' for a loan. The basic information should include the client type, basics of the industry, this company's role in the industry, who owns the business and their proportionate equity, a basic business financial snapshot for the last few years, the terms the borrower is requesting, how proceeds will be used, and what collateral is available. Upon verification and review of these documents most lenders will be able to provide the LOI, or advise the loan is not suitbable for their portfolio. Of significant importance will be the amount of "out of pocket" expenses that will be required, which is always included in the LOI.
Step 4: Provide the Documents Needed to Enable a Letter of Commitment:
Upon acceptance of the LOI by the borrower and lender, the borrower will receive an extensive list of the items required by the lender in order for them to perform their full underwriting process in order to determine that they can issue a non-contingent commitment in the form of a Letter of Commitment (LOC). The list will include property appraisals (if being used for collateral), credit checks, financial statements, management backgrounds, insurance certificates, environmental and governmental certifications where applicable, corporate documents, and a business plan including use of proceeds. Audited financials for the business may also be required. Communicating with the lender's representative or broker will help the borrower efficiently move through this process.
Step 5 - Prepare for Settlement:
Following the Letter of Commitment, the loan package will move to a settlement attorney of the lenders choice for preparation of the loan settlement. Once the lender's documents are all reviewed and in order, the lender will schedule settlement. The orderly process of preparing for settlement is primarily in the hands of a loan processor who is engaged by the lender's settlement attorney. Keeping abreast of the settlement process and following the preparation of the settlement documents is best handled by a professional such as a commercial broker that has experience with this process.
The steps to borrowing for your business are logical, but require expertise. The expertise needed to protect the borrower's interest and successfully complete a commercial loan is best provided by a commercial mortgage broker. The investment is well worth the cost, as failure rates increase proportionately with lack of proper preparation. There is money available for business loans for almost any purpose, but only those properly prepared will make it to closing.

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This article will serve as a primer outlining the steps, some principles, and business terms that are common in many types of business loan transactions.