Article by Roger Schlueter, MBA
Obtaining a Business Commercial Loan can be very labor intensive for the borrower because of the volumes of information that is asked for by the Bank. The borrower, I’m sure thinks: is all this information necessary, and what information does the bank really check?
This is a list of what the bank checks and what it may not check:
1) Your will be asked to provide a Personal Financial Statement. This document will ask about Assets that you own and Debts that you have.
A) Assets: Most Cash and Savings Account will rarely be checked and they can change daily,
so these numbers are a moving target. Most banks do not call the Banks of Account to get
a balance. If you have too much cash they may ask you to put this money in the deal.
– Accounts Receivable are a number provided by the borrower and usually are not asked to be checked.
– IRA’s or Retirement Accounts cannot be used as collateral on a loan so the bank usually
has no need to verify these accounts.
– Life Insurance Cash Surrender Value may be used as collateral for any Business
Commercial Loan so the bank may check this value.
– Stocks and Bonds again are a moving target but the bank may want to use these as
collateral also, so the Bank may want verification of their value.
– Real Estate can be checked as to the Perceived Value and the Mortgage that you have on this property. Remember, you are not an appraiser so this is your Perceived Market
Value.
– Automobiles, again this is you Perceived Value of your Automobiles.
– Other Personal Property, this is your personal effects: furniture, tools, jewelry, clothes,
equipment, collections and anything that you own personally that has a Perceived Value.
– Other Assets can be anything you own that has value. Usually it is used for a Business that
you own or some special asset that you want to value separately. Again this is your
Perceived Value.
Liabilities: Liabilities are a little easier. Pull your Credit Report and report everything that shows up on this report. Some financial entities do not report to the Credit Bureau and you
want these two to match (your liabilities and the liabilities on the Credit Bureau). Loans on
life insurance do not usually report to the Credit Bureau. Report unpaid taxes only if they
are owed for a prior year to the IRS.
C) Salary or Other Income: this should be reported as the Gross Amount before Taxes and
other Deductions. Contingent Liabilities (Legal Claims or Judgments) that show up on the
Credit Report should be Reported.
2) Always use numbers that are reported on Tax Returns for Personal and Business because the Bank will usually have you sign a 4506 -T which is a form to check on the Tax Return Information Reported to the IRS.
3) Resume: if you have provided one, are usually not checked for Accuracy.
4) Projections of Income and Expenses are just that: they are Projections and are rarely checked
for accuracy but may be checked with an Industry Publication to see that the averages are within
the industry guidelines. Such publications are RMA or S & P averages.
Summary: You need to make sure that all your numbers that you report can be matched with a Credit Bureau or some other report such as a Tax Return. Many items are of a subjective nature, such as the Cash, Accounts Receivable, and Personal Assets. All values that you give for Real Estate or Vehicles are you Perceived Value, I would always err on the side of High.
Please email any questions to roger@rogerschlueter.com or visit my webpage at schlueterfinancial.com