René Nelson with Pacwest Commercial Real Estate asks the expert Isaac Grant, a commercial lending officer with Northwest Community Credit Union, what he is looking for when he reviews a personal financial statement to qualify for a loan for commercial property in Eugene. Discover the level of cash liquidity that a commercial lending officer wants to see as well as the potential pitfalls you want to avoid.
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René Nelson: Yeah. When I send a client to you to go through the loan process, I know you want to look at their personal financial statement. Tell me what you’re looking for in the review of the financial statement.
Personal Financial Statement for Commercial Property Eugene
Isaac Grant: The personal financial statement is going to be made up of your assets and liabilities personally as well as your income and expenses on an annual basis. [For a template of a personal financial statement, visit Pacwest Commercial Real Estate.] Typically, we’re looking for some liquid assets. We want to see that you have some cash and you have some ability to support the debt that you’re taking on in the case that the subject property doesn’t perform as we expect it to. We want you to have a strong personal financial statement in regard to some liquid assets. It is good to see some other real estate assets on there as well, for some more seasoned buyers, to see how they’ve managed properties previously.
Isaac Grant: What we don’t want to see is too much leverage. We don’t want to see someone who has low cash liquidity, a lot of assets that aren’t going to be producing cash. If that’s the case, it’s going to be much harder to get them qualified.
René Nelson: You mentioned to me previously that you had someone that you were not able to help with financing, even though they had a pretty healthy asset portfolio. Talk to me about that. What did that look like?
Isaac Grant: It was an interesting scenario, and it’s come up a couple of times actually, with folks that have a high net worth. So maybe they have $10 million in net worth, but a lot of it is tied up in fixed assets, and some of those assets aren’t producing cash. As a lender, what we’re looking for is cash flow to be able to repay our debt. So we’re going to lean heavily on the subject property first, but when it comes to the personal financial statement, we want to see assets producing cash to be able to support the loan from a secondary position. This means there are scenarios where someone may have a high net worth, but they have non-cash-producing assets, and therefore we can’t get them qualified for a loan opportunity.
René Nelson: Ideally, how much cash would be a good rule of thumb to have in the bank?
Isaac Grant: It’s a case-by-case basis, but a good rule of thumb is to have 10 percent of the loan that you’re looking to acquire.
René Nelson: Does that have to be liquid, like cash in the bank? Or could it be a combination of retirement accounts, if they could access those retirement accounts?
Isaac Grant: Again, that’s going to be a case-by-case basis, depending on what those retirement accounts look like. The best rule of thumb to use is going to be real cash in a bank account.
René Nelson: So ideally you’re looking for something that you could access in the event, maybe if it’s a commercial property, like an office, that the tenant moves out and there’s a vacancy, you’ve got a bank account to dip into to cover your payments.
Isaac Grant: Exactly.
For more information about investing in commercial real estate in Eugene, call me today: René Nelson, CCIM, (541) 912-6583 / email@example.com / www.eugene-commercial.com