COMMERCIAL LENDING PACKET

Transcription

1 COMMERCIAL LENDING PACKET 2014

2 June 2014 Dear Applicant: The ERS Nationwide packet is intended for those who are not currently licensed under the BRE. CORPORATE DOCUMENTS Please complete and/or sign the documents in this folder and return them to Linda Wells at Be sure to also include a copy of your driver s license and a copy of your Social Security Card and/or passport. PLEASE NOTE: Any files received that are not complete will not be processed until such time as all documents have been completed in full and executed as required. Please do not conduct any business until all contracts are fully executed. LENDING DOCUMENTS This folder contains forms to have on hand once we have completed the sign-up process. OTHER DOCUMENTS Here you will find some excellent reading materials relative to commercial lending and some of our lender forms for your information and review. Be sure to check from time to time for new materials/documents. Thank you. Regards, Robert Do President/Broker DRE License Number: NMLS/MLO License Number:

3 CONTENTS Commercial Finance Advisor Packet Corporate Documents The following documents must be completed and submitted to the Corporate Office along with a copy of your driver s license. Please submit to: Linda Wells at [email protected]. Commercial Finance Advisor Contract Commercial Finance Advisor Confidentiality Agreement Commercial Finance Advisor Information Form IRS Form W-9 Lending Documents Loan Commitment Authorization Form Commercial Loan Application Personal Financial Statement Form IRS Form 4506-T Request for Transcript of Tax Return Credit Report Authorization and Release Form Appraisal Order Credit Card Authorization Form Other Documents Sample: East West Bank Commercial Real Estate Loan Application Article: Due Diligence Checklists for Commercial Real Estate Transactions Article: Understanding Commercial Lending 7412 Elsie Avenue Sacramento, CA fax

4 Corporate Documents

5 ERS NATIONWIDE INC. Commercial Finance Advisor Agreement This Commercial Finance Advisor Agreement ( Agreement ) is entered into as of, 2014, by and between ( CFA ) and ERS Nationwide Inc. ( ERS Nationwide ). INDEPENDENT CONTRACTOR/OUTSIDE SALES REPRESENTATIVE ERS Nationwide and CFA intend that, to the maximum extent permissible by law: (a) this Agreement does not constitute a hiring or employment agreement by either party; (b) ERS Nationwide and CFA are independent contracting parties with respect to services rendered under this Agreement or in any resulting transactions; (c) CFA only remuneration shall be his/her proportional share of all commissions collected by ERS Nationwide; (d) CFA retains sole and absolute discretion and judgment in the methods, techniques, and procedures to be used in soliciting and obtaining listings, sales, exchanges, leases, rentals, or other transactions, and in carrying out CFA s selling and soliciting activities, except as required by law or in ERS Nationwide s Office Policy Manual, if any; (e) CFA is under the control of ERS Nationwide as to the results of CFA work only, and not as to the means by which those results are accomplished, except as required by law or in ERS Nationwide s Office Policy Manual, if any; (f) this Agreement shall not be construed as a partnership, joint venture, employer/employee agreement or any other agreement other than an independent contractor agreement; (g) CFA has no authority to bind ERS Nationwide by any promise or representation unless specifically authorized by ERS Nationwide in writing; (h) ERS Nationwide shall not be liable for any obligation or liability incurred by CFA; (i) CFA shall not be treated as an employee with respect to services performed as a real estate agent, for state and federal tax purposes; and, (j) the fact that ERS Nationwide may carry workers compensation insurance for his/her/its own benefit and for the mutual benefit of ERS Nationwide and licensees associated with ERS Nationwide, including CFA, shall not create an inference of employment. ERS Nationwide will work with CFA s on a contract basis only and will supply no marketing materials, desk space, or anything that would constitute employee status as per the IRS 20 test rule. SCOPE OF SERVICES CFA shall work diligently and with his/her best efforts to: develop and structure mortgage loans for office buildings, shopping centers, hotels and other commercial properties; provide information or financial advice on commercial mortgage financing products; prepare formal loan analysis for commercial loan transactions to be submitted to lenders, including formal loan analysis presentations for clients, if needed; manage loan transactions from origination through closing and follow-up after loan closing; direct activities supporting the ERS Nationwide s image in areas of responsibility; conduct continuous reviews of borrower s compliance with loan terms and covenants; promote the business of serving the public in commercial lending transactions to the end that ERS Nationwide and CFA may derive the greatest benefit possible for the client and ERS Nationwide; comply with all state and federal lending laws and internal policies and procedures. It is important note that ERS Nationwide is a California Finance Lender/Broker. ERS Nationwide does not fund nor underwrite the loans that clients receive; thus, final approval will come from the lenders/banks. The interest rates that are quoted will come only from the lenders that we work with that are properly licensed to conduct business under the law. As a Commercial Finance Advisor, you have the fiduciary responsibility to work in the best interests of your clients and performing only those activities that are permitted by law. As an independent contractor you will be responsible for understanding the law. In many circumstances you will be representing a client as an advisor only and to assist in the formal lending process; the lenders/banks that we work with will have their own internal banking

6 managers/officers that will provide the bank terms and rates to the client. The fee that ERS Nationwide receives is for our advisory services only, not for funding our own capital, underwriting our own loans, or related activities. LIMITATIONS OF SERVICES By no means will CFA who does not hold a valid NMLS license, sell products and/or services, solicit for business nor represent such, to potential borrowers, nor shall they engage in any activity that requires an NMLS license for Residential Mortgage Loans. CONDITIONS ERS Nationwide will not provide space or any physical tools required for activities related to the performance of services to ERS Nationwide. ERS Nationwide team leaders will provide assistance relative to necessary ERS Nationwide requirements in the performance of services. ERS Nationwide training opportunities will be made available to CFA, but it is the sole responsibility of the CFA to utilize such opportunities. CFA agrees to maintain a professional appearance and to conduct him/herself in a professional manner at all times as a representative of ERS Nationwide. CFA services may require significant local travel to current and potential recruits, necessitating possession of a valid state driver s license and automobile insurance, evidence of which CFA will provide to ERS Nationwide within 60 days of the effective date of this Agreement. COMPENSATION CFA compensation will be based upon performance of services as outlined in the ERS Compensation Plan attached hereto as Exhibit A and incorporated herein by reference. ERS Nationwide will provide no other compensation to CFA. TERM OF AGREEMENT AND TERMINATION CFA is associated with ERS Nationwide for an unspecified term on an at-will basis. Except where it is otherwise expressly agreed in writing with the ERS Nationwide, either party may terminate their association at any time with or without cause or reason. In the event that the CFA has not closed any transactions or have any pending transactions in the pipeline in a 180 day period, the independent contractor relationship between ERS Nationwide and CFA will automatically terminate. CONFIDENTIALITY CFA in the course of performing the services hereunder may gain access to certain confidential or proprietary information of the ERS Nationwide. Such Confidential Information shall include all information concerning the business, affairs, products, marketing, systems, technology, customers, end-users, financial affairs, accounting, statistical data belonging to the ERS Nationwide and any data, documents, discussion, or other information developed by CFA hereunder and any other proprietary and trade secret information of ERS Nationwide whether in oral, graphic, written, electronic or machine-readable form. The CFA agrees to hold all such Confidential Information of the ERS Nationwide in strict confidence and shall not, without the express prior written permission of ERS Nationwide, (a) disclose such Confidential Information to third parties; or (b) use such Confidential Information for any purposes whatsoever, other than the performance of its obligations hereunder. The obligations under this Section shall survive termination or expiration of this Agreement. ENTIRE AGREEMENT This Agreement is the final, complete and exclusive agreement of the parties with respect to the subject matter hereof and supersedes and merges all prior or contemporaneous representations, discussions, proposals, negotiations, conditions, communications and agreements, whether written or oral, between the parties relating to ERS Nationwide Commercial Finance Advisor Agreement & Compensation Plan Page 2 of 4

7 the subject matter hereof and all past courses of dealing or industry custom. No modification of or amendment to this Agreement shall be effective unless in writing and signed by each of the parties. This Agreement is to be construed in accordance with and governed by the laws of the State of California. In the event that any disputes that arise between ERS Nationwide and CFA, ERS Nationwide and CFA will agree to binding arbitration with the Jurisdiction held in the county that the ERS Nationwide Corporate office is located in. IN WITNESS WHEREOF, the undersigned Commercial Finance Advisor hereby acknowledges that he/she has read, understands and agrees to the terms of and to abide by the guidelines and policies as stated herein. ERS NATIONWIDE INC. COMMERCIAL FINANCE ADVISOR Robert T. Do, President ERS Nationwide Inc. Date Signature Printed Name Date ERS Nationwide Commercial Finance Advisor Agreement & Compensation Plan Page 3 of 4

8 EXHIBIT A Commercial Finance Advisor Commission: 0-5 Closings... 50% 6-10 Closings... 60% Closings... 70% 16+ Closings... 80% All Closings are subject to regulatory compliance fees of errors & omissions insurance and overhead based on the commissions collected. E&O insurance fee is $ per $10,000 collected. Overhead fee is 2% for regulatory compliance and file storage. ERS NATIONWIDE INC. COMMERCIAL FINANCE ADVISOR Robert T. Do, President ERS Nationwide Inc. Date Signature Printed Name Date

9 COMMERCIAL FINANCE ADVISOR CONFIDENTIALITY, TRADE SECRETS, AND NON-SOLICITATION AGREEMENT This Confidentiality, Trade Secrets and Non-Solicitation Agreement ( Agreement ) is entered into by and between ERS Nationwide Inc. (hereinafter ERS ) and, Commercial Finance Advisor ( Independent Contractor ). AGREEMENT In consideration of the commencement or continuation of Independent Contractor s contractual relationship with ERS and the compensation paid to Independent Contractor, the sufficiency of which is acknowledged by Independent Contractor, Independent Contractor hereby acknowledges and agrees with ERS as follows: 1. Effective Date. This Agreement shall become effective on the earlier of (1) commencement of Independent Contractor s employment with ERS; or (2) Independent Contractor has a pre-existing relationship with ERS, the date and time at which any Confidential Information (as defined in Section 2(a) below) was first disclosed to Independent Contractor. 2. Protection of ERS Confidential Information. a. Confidential Information. ERS has and will develop, compile and own certain proprietary techniques and confidential information that have great value in its business ( Confidential Information ). ERS has and will also have access to Confidential Information of its Clients. ( Clients shall mean any persons or entities for whom ERS performs services or from whom ERS or Independent Contractor obtain information). Confidential Information includes not only information disclosed by ERS or its Clients to Independent Contractor in the course of his or her contractual relationship with ERS but also information developed or learned by Independent Contractor during the course of his or her contractual relationship with ERS. Confidential Information is to be broadly defined. Confidential Information includes all information that has or could have commercial value or other utility in the business in which ERS is engaged of in which it contemplates engaging. Confidential Information also includes all information of which the unauthorized disclosure could be detrimental to the interests of ERS or its Clients, whether or not such information is identified as Confidential Information by ERS or its Clients. By example and without limitation, Confidential Information includes all information concerning teaching techniques, processes, formulas, trade secrets, data, know-how, formats, marketing plans, business plans, strategies, forecasts, unpublished financial information, budgets, projections, and customer and supplier identities, characteristics, and agreements. Confidential Information shall also include, but will in no way be limited, to procedure binders, advertisement manuals, compliance manuals, and any other client contact database created used or employed by ERS. b. Protection of Confidential Information. Independent Contractor agrees that at all times during or after his or her contractual relationship with ERS, he or she will hold in trust, keep confidential, and not disclose to any third party or make any use of the Confidential Information of ERS or its Clients except for the benefit of ERS or its Clients and in the course of his or her contractual relationship with ERS. Independent Contractor recognizes that ERS restricts access to Confidential Information of its Clients to only those Independent Contractors who need to know that information to provide products or services to that Client.

10 3. Non-Competition during Contractual Relationship. Independent Contractor expressly agrees that, during the period of his or her contractual relationship with ERS Independent Contractor owes a duty of loyalty to ERS that requires Independent Contractor to act at all times in the best interests of ERS. Except with the express prior written consent of the President, Independent Contractor agrees that he or she will not, during the period of his or her contractual relationship with ERS, (a) engage in any employment or activity other than for ERS in any business in which ERS or its principles are engaged or contemplates engaging; (b) persuade or attempt to persuade any other employee or independent contractor of ERS to engage in any such employment or activity; or (c) solicit any Clients or potential Clients of ERS for services similar to those performed by. ERS even though not directly competitive with such services. 4. Prior Commitments. Independent Contractor has no other agreements, relationships, or commitments to any other person or entity that conflict with Independent Contractor s obligations to ERS under this Agreement. 5. Termination of Contractual Relationship. a. Return of Property. In the event of termination (voluntary or otherwise) of Independent Contractor s contractual relationship with ERS, Independent Contractor agrees, promptly and without request, to deliver to and inform ERS of all documents and data pertaining to his or her contractual relationship with ERS and the Confidential Information of ERS or its Clients, whether prepared by Independent Contractor or otherwise coming into his or her possession or control. Independent Contractor will not retain any written or other tangible material containing any information concerning or disclosing any of the Confidential Information of ERS or its Clients. b. Obligations Following Termination. Independent Contractor also agrees that in the event of termination (voluntary or otherwise) of Independent Contractor s contractual relationship with ERS, Independent Contractor will protect the value of the Confidential Information of ERS and its Clients and will prevent its misappropriation or disclosure. Independent Contractor will not disclose or use to his or her benefit (or the benefit of any third party), or to the detriment of ERS or its Clients, any Confidential Information. Independent Contractor further agrees that for a period of one year immediately following termination (voluntary or otherwise) of Independent Contractor s contractual relationship with ERS, Independent Contractor shall not interfere with the business of ERS by soliciting, persuading or attempting to persuade an employee or independent contractor to leave or sever its contractual relationship with ERS, or by inducing or attempting to induce any individual or business entity to sever its or any other individual s relationship with ERS. Nor shall Independent Contractor solicit or attempt to solicit any Clients from ERS for a period of one year immediately following termination (voluntary or otherwise) of Independent Contractor s contractual relationship with ERS. 6. Understanding: Independent Contractor acknowledges and agrees that the protections set forth in the Agreement are a material condition to his or her continued contractual relationship with and compensation by ERS. 7. Injunctive Relief. Because Independent Contractor consents and acknowledges that breach of the Agreement may cause ERS irreparable harm for which money is inadequate compensation, Independent Contractor agrees that ERS will be entitled to injunctive relief to enforce this Agreement, in addition to damages and other available remedies, and Independent Contractor consents to such injunctive relief. 8. Attorneys Fees. If any action is necessary to enforce this Agreement, the prevailing party shall be entitled to recover its attorneys fees. ERS NationwideInc. - Commercial Finance Advisor Confidentiality, Trade Secrets and Non-Solicitation Agreement Page 2 of 3

11 9. Entire Agreement. This Agreement expresses the entire understanding of the parties about the described subject matter. This Agreement may not be amended except by an instrument in writing signed by both parties. This Agreement shall be binding on the heirs, executors, administrators, and other legal representatives and assigns of Independent Contractor, and is for the benefit of ERS and its successors and assigns. 10. Governing Law. The laws of the State of California shall govern this Agreement. ERS NATIONWIDE INC. COMMERCIAL FINANCE ADVISOR Robert T. Do, President/Broker Signature ERS Nationwide Inc Elsie Avenue Sacramento, CA Printed Name Date Date Address Phone ERS NationwideInc. - Commercial Finance Advisor Confidentiality, Trade Secrets and Non-Solicitation Agreement Page 3 of 3

12 COMMERCIAL FINANCE ADVISOR INFORMATION FORM Last Name: MI: First Name: Home Address: City: State: Zip Code: Address: Alternate Website Address: Office Location: Home Phone: Cell Phone: Fax Number: Other Number: Emergency Contact: Phone #: Social Security Number: - - DOB: / / / Real Estate Agent Loan Officer Insurance Full Part time R.E. License # Issue Date: / / / Exp Date: / / / NMLS # Issue Date: / / / BRE DBO Insurance License # Issue Date: / / / Driver s License #: State: Issue Date: / / / Exp Date: / / Languages Spoken (Other than English) HIRE DATE: / / RECRUITED BY: ORGANIZATION: PHONE: 7412 Elsie Avenue Sacramento, CA / fax rev

13 Form W-9 (Rev. August 2013) Department of the Treasury Internal Revenue Service Name (as shown on your income tax return) Request for Taxpayer Identification Number and Certification Give Form to the requester. Do not send to the IRS. Print or type See Specific Instructions on page 2. Business name/disregarded entity name, if different from above Check appropriate box for federal tax classification: Individual/sole proprietor C Corporation S Corporation Partnership Trust/estate Limited liability company. Enter the tax classification (C=C corporation, S=S corporation, P=partnership) Other (see instructions) Address (number, street, and apt. or suite no.) City, state, and ZIP code Exemptions (see instructions): Exempt payee code (if any) Exemption from FATCA reporting code (if any) Requester s name and address (optional) List account number(s) here (optional) Part I Taxpayer Identification Number (TIN) Enter your TIN in the appropriate box. The TIN provided must match the name given on the Name line to avoid backup withholding. For individuals, this is your social security number (SSN). However, for a resident alien, sole proprietor, or disregarded entity, see the Part I instructions on page 3. For other entities, it is your employer identification number (EIN). If you do not have a number, see How to get a TIN on page 3. Note. If the account is in more than one name, see the chart on page 4 for guidelines on whose number to enter. Social security number Employer identification number Part II Certification Under penalties of perjury, I certify that: 1. The number shown on this form is my correct taxpayer identification number (or I am waiting for a number to be issued to me), and 2. I am not subject to backup withholding because: (a) I am exempt from backup withholding, or (b) I have not been notified by the Internal Revenue Service (IRS) that I am subject to backup withholding as a result of a failure to report all interest or dividends, or (c) the IRS has notified me that I am no longer subject to backup withholding, and 3. I am a U.S. citizen or other U.S. person (defined below), and 4. The FATCA code(s) entered on this form (if any) indicating that I am exempt from FATCA reporting is correct. Certification instructions. You must cross out item 2 above if you have been notified by the IRS that you are currently subject to backup withholding because you have failed to report all interest and dividends on your tax return. For real estate transactions, item 2 does not apply. For mortgage interest paid, acquisition or abandonment of secured property, cancellation of debt, contributions to an individual retirement arrangement (IRA), and generally, payments other than interest and dividends, you are not required to sign the certification, but you must provide your correct TIN. See the instructions on page 3. Sign Here Signature of U.S. person General Instructions Section references are to the Internal Revenue Code unless otherwise noted. Future developments. The IRS has created a page on IRS.gov for information about Form W-9, at Information about any future developments affecting Form W-9 (such as legislation enacted after we release it) will be posted on that page. Purpose of Form A person who is required to file an information return with the IRS must obtain your correct taxpayer identification number (TIN) to report, for example, income paid to you, payments made to you in settlement of payment card and third party network transactions, real estate transactions, mortgage interest you paid, acquisition or abandonment of secured property, cancellation of debt, or contributions you made to an IRA. Use Form W-9 only if you are a U.S. person (including a resident alien), to provide your correct TIN to the person requesting it (the requester) and, when applicable, to: 1. Certify that the TIN you are giving is correct (or you are waiting for a number to be issued), 2. Certify that you are not subject to backup withholding, or 3. Claim exemption from backup withholding if you are a U.S. exempt payee. If applicable, you are also certifying that as a U.S. person, your allocable share of any partnership income from a U.S. trade or business is not subject to the Date withholding tax on foreign partners share of effectively connected income, and 4. Certify that FATCA code(s) entered on this form (if any) indicating that you are exempt from the FATCA reporting, is correct. Note. If you are a U.S. person and a requester gives you a form other than Form W-9 to request your TIN, you must use the requester s form if it is substantially similar to this Form W-9. Definition of a U.S. person. For federal tax purposes, you are considered a U.S. person if you are: An individual who is a U.S. citizen or U.S. resident alien, A partnership, corporation, company, or association created or organized in the United States or under the laws of the United States, An estate (other than a foreign estate), or A domestic trust (as defined in Regulations section ). Special rules for partnerships. Partnerships that conduct a trade or business in the United States are generally required to pay a withholding tax under section 1446 on any foreign partners share of effectively connected taxable income from such business. Further, in certain cases where a Form W-9 has not been received, the rules under section 1446 require a partnership to presume that a partner is a foreign person, and pay the section 1446 withholding tax. Therefore, if you are a U.S. person that is a partner in a partnership conducting a trade or business in the United States, provide Form W-9 to the partnership to establish your U.S. status and avoid section 1446 withholding on your share of partnership income. Cat. No X Form W-9 (Rev )

14 Form W-9 (Rev ) Page 2 In the cases below, the following person must give Form W-9 to the partnership for purposes of establishing its U.S. status and avoiding withholding on its allocable share of net income from the partnership conducting a trade or business in the United States: In the case of a disregarded entity with a U.S. owner, the U.S. owner of the disregarded entity and not the entity, In the case of a grantor trust with a U.S. grantor or other U.S. owner, generally, the U.S. grantor or other U.S. owner of the grantor trust and not the trust, and In the case of a U.S. trust (other than a grantor trust), the U.S. trust (other than a grantor trust) and not the beneficiaries of the trust. Foreign person. If you are a foreign person or the U.S. branch of a foreign bank that has elected to be treated as a U.S. person, do not use Form W-9. Instead, use the appropriate Form W-8 or Form 8233 (see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities). Nonresident alien who becomes a resident alien. Generally, only a nonresident alien individual may use the terms of a tax treaty to reduce or eliminate U.S. tax on certain types of income. However, most tax treaties contain a provision known as a saving clause. Exceptions specified in the saving clause may permit an exemption from tax to continue for certain types of income even after the payee has otherwise become a U.S. resident alien for tax purposes. If you are a U.S. resident alien who is relying on an exception contained in the saving clause of a tax treaty to claim an exemption from U.S. tax on certain types of income, you must attach a statement to Form W-9 that specifies the following five items: 1. The treaty country. Generally, this must be the same treaty under which you claimed exemption from tax as a nonresident alien. 2. The treaty article addressing the income. 3. The article number (or location) in the tax treaty that contains the saving clause and its exceptions. 4. The type and amount of income that qualifies for the exemption from tax. 5. Sufficient facts to justify the exemption from tax under the terms of the treaty article. Example. Article 20 of the U.S.-China income tax treaty allows an exemption from tax for scholarship income received by a Chinese student temporarily present in the United States. Under U.S. law, this student will become a resident alien for tax purposes if his or her stay in the United States exceeds 5 calendar years. However, paragraph 2 of the first Protocol to the U.S.-China treaty (dated April 30, 1984) allows the provisions of Article 20 to continue to apply even after the Chinese student becomes a resident alien of the United States. A Chinese student who qualifies for this exception (under paragraph 2 of the first protocol) and is relying on this exception to claim an exemption from tax on his or her scholarship or fellowship income would attach to Form W-9 a statement that includes the information described above to support that exemption. If you are a nonresident alien or a foreign entity, give the requester the appropriate completed Form W-8 or Form What is backup withholding? Persons making certain payments to you must under certain conditions withhold and pay to the IRS a percentage of such payments. This is called backup withholding. Payments that may be subject to backup withholding include interest, tax-exempt interest, dividends, broker and barter exchange transactions, rents, royalties, nonemployee pay, payments made in settlement of payment card and third party network transactions, and certain payments from fishing boat operators. Real estate transactions are not subject to backup withholding. You will not be subject to backup withholding on payments you receive if you give the requester your correct TIN, make the proper certifications, and report all your taxable interest and dividends on your tax return. Payments you receive will be subject to backup withholding if: 1. You do not furnish your TIN to the requester, 2. You do not certify your TIN when required (see the Part II instructions on page 3 for details), 3. The IRS tells the requester that you furnished an incorrect TIN, 4. The IRS tells you that you are subject to backup withholding because you did not report all your interest and dividends on your tax return (for reportable interest and dividends only), or 5. You do not certify to the requester that you are not subject to backup withholding under 4 above (for reportable interest and dividend accounts opened after 1983 only). Certain payees and payments are exempt from backup withholding. See Exempt payee code on page 3 and the separate Instructions for the Requester of Form W-9 for more information. Also see Special rules for partnerships on page 1. What is FATCA reporting? The Foreign Account Tax Compliance Act (FATCA) requires a participating foreign financial institution to report all United States account holders that are specified United States persons. Certain payees are exempt from FATCA reporting. See Exemption from FATCA reporting code on page 3 and the Instructions for the Requester of Form W-9 for more information. Updating Your Information You must provide updated information to any person to whom you claimed to be an exempt payee if you are no longer an exempt payee and anticipate receiving reportable payments in the future from this person. For example, you may need to provide updated information if you are a C corporation that elects to be an S corporation, or if you no longer are tax exempt. In addition, you must furnish a new Form W-9 if the name or TIN changes for the account, for example, if the grantor of a grantor trust dies. Penalties Failure to furnish TIN. If you fail to furnish your correct TIN to a requester, you are subject to a penalty of $50 for each such failure unless your failure is due to reasonable cause and not to willful neglect. Civil penalty for false information with respect to withholding. If you make a false statement with no reasonable basis that results in no backup withholding, you are subject to a $500 penalty. Criminal penalty for falsifying information. Willfully falsifying certifications or affirmations may subject you to criminal penalties including fines and/or imprisonment. Misuse of TINs. If the requester discloses or uses TINs in violation of federal law, the requester may be subject to civil and criminal penalties. Specific Instructions Name If you are an individual, you must generally enter the name shown on your income tax return. However, if you have changed your last name, for instance, due to marriage without informing the Social Security Administration of the name change, enter your first name, the last name shown on your social security card, and your new last name. If the account is in joint names, list first, and then circle, the name of the person or entity whose number you entered in Part I of the form. Sole proprietor. Enter your individual name as shown on your income tax return on the Name line. You may enter your business, trade, or doing business as (DBA) name on the Business name/disregarded entity name line. Partnership, C Corporation, or S Corporation. Enter the entity's name on the Name line and any business, trade, or doing business as (DBA) name on the Business name/disregarded entity name line. Disregarded entity. For U.S. federal tax purposes, an entity that is disregarded as an entity separate from its owner is treated as a disregarded entity. See Regulation section (c)(2)(iii). Enter the owner's name on the Name line. The name of the entity entered on the Name line should never be a disregarded entity. The name on the Name line must be the name shown on the income tax return on which the income should be reported. For example, if a foreign LLC that is treated as a disregarded entity for U.S. federal tax purposes has a single owner that is a U.S. person, the U.S. owner's name is required to be provided on the Name line. If the direct owner of the entity is also a disregarded entity, enter the first owner that is not disregarded for federal tax purposes. Enter the disregarded entity's name on the Business name/disregarded entity name line. If the owner of the disregarded entity is a foreign person, the owner must complete an appropriate Form W-8 instead of a Form W-9. This is the case even if the foreign person has a U.S. TIN. Note. Check the appropriate box for the U.S. federal tax classification of the person whose name is entered on the Name line (Individual/sole proprietor, Partnership, C Corporation, S Corporation, Trust/estate). Limited Liability Company (LLC). If the person identified on the Name line is an LLC, check the Limited liability company box only and enter the appropriate code for the U.S. federal tax classification in the space provided. If you are an LLC that is treated as a partnership for U.S. federal tax purposes, enter P for partnership. If you are an LLC that has filed a Form 8832 or a Form 2553 to be taxed as a corporation, enter C for C corporation or S for S corporation, as appropriate. If you are an LLC that is disregarded as an entity separate from its owner under Regulation section (except for employment and excise tax), do not check the LLC box unless the owner of the LLC (required to be identified on the Name line) is another LLC that is not disregarded for U.S. federal tax purposes. If the LLC is disregarded as an entity separate from its owner, enter the appropriate tax classification of the owner identified on the Name line. Other entities. Enter your business name as shown on required U.S. federal tax documents on the Name line. This name should match the name shown on the charter or other legal document creating the entity. You may enter any business, trade, or DBA name on the Business name/disregarded entity name line. Exemptions If you are exempt from backup withholding and/or FATCA reporting, enter in the Exemptions box, any code(s) that may apply to you. See Exempt payee code and Exemption from FATCA reporting code on page 3.

15 Form W-9 (Rev ) Page 3 Exempt payee code. Generally, individuals (including sole proprietors) are not exempt from backup withholding. Corporations are exempt from backup withholding for certain payments, such as interest and dividends. Corporations are not exempt from backup withholding for payments made in settlement of payment card or third party network transactions. Note. If you are exempt from backup withholding, you should still complete this form to avoid possible erroneous backup withholding. The following codes identify payees that are exempt from backup withholding: 1 An organization exempt from tax under section 501(a), any IRA, or a custodial account under section 403(b)(7) if the account satisfies the requirements of section 401(f)(2) 2 The United States or any of its agencies or instrumentalities 3 A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities 4 A foreign government or any of its political subdivisions, agencies, or instrumentalities 5 A corporation 6 A dealer in securities or commodities required to register in the United States, the District of Columbia, or a possession of the United States 7 A futures commission merchant registered with the Commodity Futures Trading Commission 8 A real estate investment trust 9 An entity registered at all times during the tax year under the Investment Company Act of A common trust fund operated by a bank under section 584(a) 11 A financial institution 12 A middleman known in the investment community as a nominee or custodian 13 A trust exempt from tax under section 664 or described in section 4947 The following chart shows types of payments that may be exempt from backup withholding. The chart applies to the exempt payees listed above, 1 through 13. IF the payment is for... THEN the payment is exempt for... Interest and dividend payments All exempt payees except for 7 Broker transactions Exempt payees 1 through 4 and 6 through 11 and all C corporations. S corporations must not enter an exempt payee code because they are exempt only for sales of noncovered securities acquired prior to Barter exchange transactions and patronage dividends Payments over $600 required to be reported and direct sales over $5,000 1 Payments made in settlement of payment card or third party network transactions Exempt payees 1 through 4 Generally, exempt payees 1 through 5 2 Exempt payees 1 through 4 1 See Form 1099-MISC, Miscellaneous Income, and its instructions. 2 However, the following payments made to a corporation and reportable on Form 1099-MISC are not exempt from backup withholding: medical and health care payments, attorneys' fees, gross proceeds paid to an attorney, and payments for services paid by a federal executive agency. Exemption from FATCA reporting code. The following codes identify payees that are exempt from reporting under FATCA. These codes apply to persons submitting this form for accounts maintained outside of the United States by certain foreign financial institutions. Therefore, if you are only submitting this form for an account you hold in the United States, you may leave this field blank. Consult with the person requesting this form if you are uncertain if the financial institution is subject to these requirements. A An organization exempt from tax under section 501(a) or any individual retirement plan as defined in section 7701(a)(37) B The United States or any of its agencies or instrumentalities C A state, the District of Columbia, a possession of the United States, or any of their political subdivisions or instrumentalities D A corporation the stock of which is regularly traded on one or more established securities markets, as described in Reg. section (c)(1)(i) E A corporation that is a member of the same expanded affiliated group as a corporation described in Reg. section (c)(1)(i) F A dealer in securities, commodities, or derivative financial instruments (including notional principal contracts, futures, forwards, and options) that is registered as such under the laws of the United States or any state G A real estate investment trust H A regulated investment company as defined in section 851 or an entity registered at all times during the tax year under the Investment Company Act of 1940 I A common trust fund as defined in section 584(a) J A bank as defined in section 581 K A broker L A trust exempt from tax under section 664 or described in section 4947(a)(1) M A tax exempt trust under a section 403(b) plan or section 457(g) plan Part I. Taxpayer Identification Number (TIN) Enter your TIN in the appropriate box. If you are a resident alien and you do not have and are not eligible to get an SSN, your TIN is your IRS individual taxpayer identification number (ITIN). Enter it in the social security number box. If you do not have an ITIN, see How to get a TIN below. If you are a sole proprietor and you have an EIN, you may enter either your SSN or EIN. However, the IRS prefers that you use your SSN. If you are a single-member LLC that is disregarded as an entity separate from its owner (see Limited Liability Company (LLC) on page 2), enter the owner s SSN (or EIN, if the owner has one). Do not enter the disregarded entity s EIN. If the LLC is classified as a corporation or partnership, enter the entity s EIN. Note. See the chart on page 4 for further clarification of name and TIN combinations. How to get a TIN. If you do not have a TIN, apply for one immediately. To apply for an SSN, get Form SS-5, Application for a Social Security Card, from your local Social Security Administration office or get this form online at You may also get this form by calling Use Form W-7, Application for IRS Individual Taxpayer Identification Number, to apply for an ITIN, or Form SS-4, Application for Employer Identification Number, to apply for an EIN. You can apply for an EIN online by accessing the IRS website at and clicking on Employer Identification Number (EIN) under Starting a Business. You can get Forms W-7 and SS-4 from the IRS by visiting IRS.gov or by calling TAX-FORM ( ). If you are asked to complete Form W-9 but do not have a TIN, apply for a TIN and write Applied For in the space for the TIN, sign and date the form, and give it to the requester. For interest and dividend payments, and certain payments made with respect to readily tradable instruments, generally you will have 60 days to get a TIN and give it to the requester before you are subject to backup withholding on payments. The 60-day rule does not apply to other types of payments. You will be subject to backup withholding on all such payments until you provide your TIN to the requester. Note. Entering Applied For means that you have already applied for a TIN or that you intend to apply for one soon. Caution: A disregarded U.S. entity that has a foreign owner must use the appropriate Form W-8. Part II. Certification To establish to the withholding agent that you are a U.S. person, or resident alien, sign Form W-9. You may be requested to sign by the withholding agent even if items 1, 4, or 5 below indicate otherwise. For a joint account, only the person whose TIN is shown in Part I should sign (when required). In the case of a disregarded entity, the person identified on the Name line must sign. Exempt payees, see Exempt payee code earlier. Signature requirements. Complete the certification as indicated in items 1 through 5 below. 1. Interest, dividend, and barter exchange accounts opened before 1984 and broker accounts considered active during You must give your correct TIN, but you do not have to sign the certification. 2. Interest, dividend, broker, and barter exchange accounts opened after 1983 and broker accounts considered inactive during You must sign the certification or backup withholding will apply. If you are subject to backup withholding and you are merely providing your correct TIN to the requester, you must cross out item 2 in the certification before signing the form. 3. Real estate transactions. You must sign the certification. You may cross out item 2 of the certification. 4. Other payments. You must give your correct TIN, but you do not have to sign the certification unless you have been notified that you have previously given an incorrect TIN. Other payments include payments made in the course of the requester s trade or business for rents, royalties, goods (other than bills for merchandise), medical and health care services (including payments to corporations), payments to a nonemployee for services, payments made in settlement of payment card and third party network transactions, payments to certain fishing boat crew members and fishermen, and gross proceeds paid to attorneys (including payments to corporations). 5. Mortgage interest paid by you, acquisition or abandonment of secured property, cancellation of debt, qualified tuition program payments (under section 529), IRA, Coverdell ESA, Archer MSA or HSA contributions or distributions, and pension distributions. You must give your correct TIN, but you do not have to sign the certification.

16 Form W-9 (Rev ) Page 4 What Name and Number To Give the Requester For this type of account: Give name and SSN of: 1. Individual The individual 2. Two or more individuals (joint The actual owner of the account or, account) if combined funds, the first individual on the account 1 3. Custodian account of a minor The minor 2 (Uniform Gift to Minors Act) 4. a. The usual revocable savings The grantor-trustee 1 trust (grantor is also trustee) b. So-called trust account that is The actual owner 1 not a legal or valid trust under state law 5. Sole proprietorship or disregarded The owner 3 entity owned by an individual 6. Grantor trust filing under Optional The grantor* Form 1099 Filing Method 1 (see Regulation section (b)(2)(i)(A)) For this type of account: Give name and EIN of: 7. Disregarded entity not owned by an The owner individual 8. A valid trust, estate, or pension trust Legal entity 4 9. Corporation or LLC electing The corporation corporate status on Form 8832 or Form Association, club, religious, charitable, educational, or other tax-exempt organization The organization 11. Partnership or multi-member LLC The partnership 12. A broker or registered nominee The broker or nominee 13. Account with the Department of The public entity Agriculture in the name of a public entity (such as a state or local government, school district, or prison) that receives agricultural program payments 14. Grantor trust filing under the Form The trust 1041 Filing Method or the Optional Form 1099 Filing Method 2 (see Regulation section (b)(2)(i)(B)) Note. If no name is circled when more than one name is listed, the number will be considered to be that of the first name listed. Secure Your Tax Records from Identity Theft Identity theft occurs when someone uses your personal information such as your name, social security number (SSN), or other identifying information, without your permission, to commit fraud or other crimes. An identity thief may use your SSN to get a job or may file a tax return using your SSN to receive a refund. To reduce your risk: Protect your SSN, Ensure your employer is protecting your SSN, and Be careful when choosing a tax preparer. If your tax records are affected by identity theft and you receive a notice from the IRS, respond right away to the name and phone number printed on the IRS notice or letter. If your tax records are not currently affected by identity theft but you think you are at risk due to a lost or stolen purse or wallet, questionable credit card activity or credit report, contact the IRS Identity Theft Hotline at or submit Form For more information, see Publication 4535, Identity Theft Prevention and Victim Assistance. Victims of identity theft who are experiencing economic harm or a system problem, or are seeking help in resolving tax problems that have not been resolved through normal channels, may be eligible for Taxpayer Advocate Service (TAS) assistance. You can reach TAS by calling the TAS toll-free case intake line at or TTY/TDD Protect yourself from suspicious s or phishing schemes. Phishing is the creation and use of and websites designed to mimic legitimate business s and websites. The most common act is sending an to a user falsely claiming to be an established legitimate enterprise in an attempt to scam the user into surrendering private information that will be used for identity theft. The IRS does not initiate contacts with taxpayers via s. Also, the IRS does not request personal detailed information through or ask taxpayers for the PIN numbers, passwords, or similar secret access information for their credit card, bank, or other financial accounts. If you receive an unsolicited claiming to be from the IRS, forward this message to [email protected]. You may also report misuse of the IRS name, logo, or other IRS property to the Treasury Inspector General for Tax Administration at You can forward suspicious s to the Federal Trade Commission at: [email protected] or contact them at or IDTHEFT ( ). Visit IRS.gov to learn more about identity theft and how to reduce your risk. 1 List first and circle the name of the person whose number you furnish. If only one person on a joint account has an SSN, that person s number must be furnished. 2 Circle the minor s name and furnish the minor s SSN. 3 You must show your individual name and you may also enter your business or DBA name on the Business name/disregarded entity name line. You may use either your SSN or EIN (if you have one), but the IRS encourages you to use your SSN. 4 List first and circle the name of the trust, estate, or pension trust. (Do not furnish the TIN of the personal representative or trustee unless the legal entity itself is not designated in the account title.) Also see Special rules for partnerships on page 1. *Note. Grantor also must provide a Form W-9 to trustee of trust. Privacy Act Notice Section 6109 of the Internal Revenue Code requires you to provide your correct TIN to persons (including federal agencies) who are required to file information returns with the IRS to report interest, dividends, or certain other income paid to you; mortgage interest you paid; the acquisition or abandonment of secured property; the cancellation of debt; or contributions you made to an IRA, Archer MSA, or HSA. The person collecting this form uses the information on the form to file information returns with the IRS, reporting the above information. Routine uses of this information include giving it to the Department of Justice for civil and criminal litigation and to cities, states, the District of Columbia, and U.S. commonwealths and possessions for use in administering their laws. The information also may be disclosed to other countries under a treaty, to federal and state agencies to enforce civil and criminal laws, or to federal law enforcement and intelligence agencies to combat terrorism. You must provide your TIN whether or not you are required to file a tax return. Under section 3406, payers must generally withhold a percentage of taxable interest, dividend, and certain other payments to a payee who does not give a TIN to the payer. Certain penalties may also apply for providing false or fraudulent information.

17 Lending Documents

18 LOAN COMMITMENT AUTHORIZATION In consideration of the services to be performed by ERS Nationwide Inc. hereinafter referred to as "ERS," and, hereinafter referred to as "Applicant" without regard to number or gender, hereby employs ERS for the period of days commencing, 20, to produce a lender, ready, willing and able to extend Applicant a loan on the following terms and conditions: Amount Term: Rate: Borrowers: Prepayment Penalty Property: Other: Applicant agrees to pay ERS a total fee of $ for obtaining a loan commitment on the above terms or other terms Applicant may accept. Applicant will pay the above fees to ERS if a loan commitment is obtained from a lender whom ERS has contacted pursuant to the Property described herein for a period of one year from date of this Agreement. Applicant hereby authorizes ERS to act as its agent to do all things and execute all documents on behalf of the Applicant incidental to or reasonably necessary to the consummation of said loan. Applicant agrees to cooperate with ERS and with any lender or prospective lender and agrees to do all things and execute any and all documents incidental to or reasonably necessary to the consummation of said loan. Applicant agrees to abide by the standard terms and conditions prescribed by the lender ready, willing and able to grant said loan. Applicant agrees to pay all costs incidental to said loan, including but not limited to lender's fees, escrow and title costs, appraiser, architects, surveyors, and attorneys fees, etc. Applicant represents and warrants that all statements submitted by him/her to ERS are true and correct and represents that ERS may act in reliance thereon. There will be no charge by ERS to Applicant in the event a loan commitment as outlined above is not obtained. Applicant hereby directs lender to dispose, through escrow, ERS's fee at close of escrow, unless this arrangement is not acceptable with lender; then Applicant will pay ERS said fee outside of and upon close of escrow. Notwithstanding the foregoing, Applicant agrees to pay ERS said fee within 30 days of obtainment of loan commitment as outlined above. The parties hereto acknowledge that this Agreement contains the entire understanding of the parties and there are no representations, warranties, covenants or understandings other than those expressly set forth herein. APPLICANT HEREBY ACKNOWLEDGES THE RECEIPT OF A COPY OF THIS AGREEMENT. Signature Printed Name Date Signature Printed Name Date THE ABOVE AUTHORIZATION IS HEREBY ACCEPTED AND ERS AGREES TO USE DUE DILIGENCE IN ATTEMPTING TO OBTAIN THE LOAN COMMITMENT DESCRIBED HEREIN. Robert T. Do., President ERS Nationwide Inc. Date

19 COMMERCIAL LOAN APPLICATION CREDIT REQUESTED Amount Requested Term of Credit Requested Loan Type: Line of Credit Specify all intended uses of loan proceeds (if more than one): Does borrower(s) have any unpaid taxes or judgments? Yes No If yes, please explain: Equipment purchase Refinance (please specify) Other (please specify): Business expansion Furniture or Fixtures SBA Ownership Percentage Purpose of Credit Requested Credit Request Applicant Only Joint with Co-Applicant(s) App. # It is our intent to apply for joint credit initials initials COMPLETION INSTRUCTIONS FOR APPLICANT Complete the Applicant information for the first Applicant. Mark the appropriate box to indicate whether the Applicant is applying as a Borrower, Guarantor, Cosigner, Grantor (of collateral), or Other for a different capacity. If the Applicant is a married individual, he or she may apply for individual credit. (Do Not complete Marital Status question below if application is for individual unsecured credit) APPLICANT INFORMATION: Applicant is a: Borrower Guarantor Cosigner Grantor Other Name of Applicant (Business Name or Last Name if Individual Applicant First Name (If Individual) SSN/TIN# Main Contact Phone Number Filing Dates Filing Locations DBA Name Please describe the nature of the business in which the borrower is engaged: Check Appropriate Box If you are applying for individual credit and are relying on your own income or assets and not the income or assets of another person as the basis for repayment of the credit requested, do not complete the section for marital status. If you are applying for individual credit, but are relying on income from alimony, child support, or separate maintenance or on the income or assets of another person as the basis for repayment of the credit requested, complete all sections to the extent possible, providing information about the person whose alimony, support maintenance payments or income or assets you are relying. If you are applying for joint credit with another applicant, complete all sections and attach joint application. Marital Status (If Individual Borrower) Married Unmarried Separated Street Address City State Zip Code Mailing Address City State Zip Code Principal Office Address (if not listed above) City State Zip Code State of Organization Applicant: Individual Proprietorship Partnership Corporation Non-Profit Association Trust Govt. Entity LLC SCHEDULE OF COLLATERAL OFFERED BY THIS APPLICANT Description Value Total Liens Ownership Status of This Applicant Creditor Name (if any) $ Purchase Money Presently Owned $ Purchase Money Presently Owned $ Purchase Money Presently Owned Use Additional Sheet if Necessary 1

20 RELATIONSHIP INFORMATION - APPLICANT'S HISTORY WITH LENDER New Customer Customer Since (MM-YYYY): Last Financial Statement Date (MM-DD-YYYY): Existing Customer Last Tax Return Date on File (YYYY): Last Credit Report Date (MM-DD-YYYY): Last Credit Bureau: How Many Years in Business Any bankruptcies in last 10 years? Any current or pending law suits or judgments? Yes No Yes No (If yes, please explaing) Liabilities with Lender Deposits with Lender Total Credit With Lender Direct: $ DDA Avg: $ New Credit: $ Contingent: $ Other Avg: $ Proposed Total: $ Total: $ Total Avg: $ LIST ALL GUARANTORS AND/OR AUTHORIZED SIGNERS FOR THIS APPLICANT Name Title Authorized Signer SSN or TIN # Guarantor Street Address City State Zip Code Name Title Authorized Signer SSN or TIN # Guarantor Street Address City State Zip Code Name Title Authorized Signer SSN or TIN# Guarantor Street Address City State Zip Code Name Title Authorized Signer SSN or TIN # Guarantor Street Address City State Zip Code Name Title Authorized Signer SSN or TIN# Guarantor Street Address City State Zip Code Name Title Authorized Signer SSN or TIN # Guarantor Street Address City State Zip Code Use Additional Sheet if Necessary APPLICANT SIGNATURES I/We hereby apply for the loan or credit described in this application on behalf of the applicant business. I/We certify that I/we did not omit any important information. I/We agree that any property securing the loan or credit will not be used for any illegal or restricted purpose. Lender is authorized to verify with other parties and to make any investigation of my/our credit, either directly or through any agency employed by the Lender for that purpose. Lender may disclose to any other interested parties information as to Lenders' experiences or transactions with my/our account. I/We understand that Lender will retain this application and any other credit information Lender receives, even if no loan or credit is granted. These representation and authorizations extend not only to Lender, but also to any insurer of the loan and to any investor to whom Lender may sell all or any part of the loan. I/We further authorize Lender to provide any such insurer or investor any information and documentation they the may request with respect to my/our application, credit or loan. APPLICANT: DATE By: (Seal): By: (Seal): By: (Seal): By: (Seal): By: (Seal): By: (Seal): Use Additional Sheet if Necessary FOR LENDER'S USE ONLY Officer No./Name Approved By Concurrence By (If Needed) Committee Date Decision Date Branch Application Date Application No. Committee No. Loan No. DATE Decision and Comments: Approved Denied Incomplete Counteroffer Conditional Approval Withdrawal Other 2

21 3

22 PERSONAL FINANCIAL STATEMENT As of, Complete this form for: (1) each proprietor, or (2) each limited partner who owns 20% or more interest and each general partner, or (3) each stockholder owning 20% or more of voting stock, or (4) any person or entity providing a guaranty on the loan. Name Business Phone Residence Address Residence Phone City, State, & Zip Code Business Name of Applicant/Borrower ASSETS Cash on hand & in Banks Savings Accounts IRA or Other Retirement Account Accounts & Notes Receivable Life Insurance-Cash Surrender Value Only (Complete Section 8) Stocks and Bonds (Describe in Section 3) Real Estate (Describe in Section 4) Automobile-Present Value Other Personal Property (Describe in Section 5) Other Assets (Describe in Section 5) Section 1. Source of Income Salary Net Investment Income Real Estate Income Other Income (Describe below)* Total (Omit Cents) LIABILITIES (Omit Cents) $ Accounts Payable $ $ Notes Payable to Banks and Others $ $ (Describe in Section 2) $ Installment Account (Auto) $ $ Mo. Payments $ Installment Account (Other) $ $ Mo. Payments $ Loan on Life Insurance $ $ Mortgages on Real Estate $ (Describe in Section 4) $ Unpaid Taxes $ $ (Describe in Section 6) Other Liabilities $ $ (Describe in Section 7) Total Liabilities $ Net Worth $ $ Total $ Contingent Liabilities $ As Endorser or Co-Maker $ $ Legal Claims & Judgments $ $ Provision for Federal Income Tax $ $ Other Special Debt $ Description of Other Income in Section 1. *Alimony or child support payments need not be disclosed in "Other Income" unless it is desired to have such payments counted toward total income. Section 2. Notes Payable to Banks and Others. (Use attachments if necessary. Each attachment must be identified as a part of this statement and signed.) Original Current Payment Frequency How Secured or Endorsed Name and Address of Noteholder(s) Balance Balance Amount (monthly,etc.) Type of Collateral

23 Section 3. Stocks and Bonds. (Use attachments if necessary. Each attachment must be identified as a part of this statement and signed). Number of Shares Name of Securities Cost Market Value Date of Total Value Quotation/Exchange Quotation/Exchange Section 4. Real Estate Owned. Type of Property (List each parcel separately. Use attachment if necessary. Each attachment must be identified as a part of this statement and signed.) Property A Property B Property C Address Date Purchased Original Cost Present Market Value Name & Address of Mortgage Holder Mortgage Account Number Mortgage Balance Amount of Payment per Month/Year Status of Mortgage Section 5. Other Personal Property and Other Assets. (Describe, and if any is pledged as security, state name and address of lien holder, amount of lien, terms of payment and if delinquent, describe delinquency) Section 6. Unpaid Taxes. (Describe in detail, as to type, to whom payable, when due, amount, and to what property, if any, a tax lien attaches.) Section 7. Other Liabilities. (Describe in detail.) Section 8. Life Insurance Held. (Give face amount and cash surrender value of policies - name of insurance company and beneficiaries) I authorize SBA/Lender to make inquiries as necessary to verify the accuracy of the statements made and to determine my creditworthiness. I certify the above and the statements contained in the attachments are true and accurate as of the stated date(s). These statements are made for the purpose of either obtaining a loan or guaranteeing a loan. I understand FALSE statements may result in forfeiture of benefits and possible prosecution by the U.S. Attorney General (Reference 18 U.S.C. 1001). Signature: Date: Social Security Number: Signature: Date: Social Security Number:

24 Form 4506-T (Rev. September 2013) Department of the Treasury Internal Revenue Service Request for Transcript of Tax Return Request may be rejected if the form is incomplete or illegible. OMB No Tip. Use Form 4506-T to order a transcript or other return information free of charge. See the product list below. You can quickly request transcripts by using our automated self-help service tools. Please visit us at IRS.gov and click on "Order a Return or Account Transcript" or call If you need a copy of your return, use Form 4506, Request for Copy of Tax Return. There is a fee to get a copy of your return. 1a Name shown on tax return. If a joint return, enter the name shown first. 1b First social security number on tax return, individual taxpayer identification number, or employer identification number (see instructions) 2a If a joint return, enter spouse s name shown on tax return. 2b Second social security number or individual taxpayer identification number if joint tax return 3 Current name, address (including apt., room, or suite no.), city, state, and ZIP code (see instructions) 4 Previous address shown on the last return filed if different from line 3 (see instructions) 5 If the transcript or tax information is to be mailed to a third party (such as a mortgage company), enter the third party s name, address, and telephone number. Caution. If the tax transcript is being mailed to a third party, ensure that you have filled in lines 6 through 9 before signing. Sign and date the form once you have filled in these lines. Completing these steps helps to protect your privacy. Once the IRS discloses your tax transcript to the third party listed on line 5, the IRS has no control over what the third party does with the information. If you would like to limit the third party's authority to disclose your transcript information, you can specify this limitation in your written agreement with the third party. 6 Transcript requested. Enter the tax form number here (1040, 1065, 1120, etc.) and check the appropriate box below. Enter only one tax form number per request. a Return Transcript, which includes most of the line items of a tax return as filed with the IRS. A tax return transcript does not reflect changes made to the account after the return is processed. Transcripts are only available for the following returns: Form 1040 series, Form 1065, Form 1120, Form 1120A, Form 1120H, Form 1120L, and Form 1120S. Return transcripts are available for the current year and returns processed during the prior 3 processing years. Most requests will be processed within 10 business days b Account Transcript, which contains information on the financial status of the account, such as payments made on the account, penalty assessments, and adjustments made by you or the IRS after the return was filed. Return information is limited to items such as tax liability and estimated tax payments. Account transcripts are available for most returns. Most requests will be processed within 10 business days. c Record of Account, which provides the most detailed information as it is a combination of the Return Transcript and the Account Transcript. Available for current year and 3 prior tax years. Most requests will be processed within 10 business days Verification of Nonfiling, which is proof from the IRS that you did not file a return for the year. Current year requests are only available after June 15th. There are no availability restrictions on prior year requests. Most requests will be processed within 10 business days.. 8 Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcript. The IRS can provide a transcript that includes data from these information returns. State or local information is not included with the Form W-2 information. The IRS may be able to provide this transcript information for up to 10 years. Information for the current year is generally not available until the year after it is filed with the IRS. For example, W-2 information for 2011, filed in 2012, will likely not be available from the IRS until If you need W-2 information for retirement purposes, you should contact the Social Security Administration at Most requests will be processed within 10 business days. Caution. If you need a copy of Form W-2 or Form 1099, you should first contact the payer. To get a copy of the Form W-2 or Form 1099 filed with your return, you must use Form 4506 and request a copy of your return, which includes all attachments. 9 Year or period requested. Enter the ending date of the year or period, using the mm/dd/yyyy format. If you are requesting more than four years or periods, you must attach another Form 4506-T. For requests relating to quarterly tax returns, such as Form 941, you must enter each quarter or tax period separately. Check this box if you have notified the IRS or the IRS has notified you that one of the years for which you are requesting a transcript involved identity theft on your federal tax return Caution. Do not sign this form unless all applicable lines have been completed. Signature of taxpayer(s). I declare that I am either the taxpayer whose name is shown on line 1a or 2a, or a person authorized to obtain the tax information requested. If the request applies to a joint return, at least one spouse must sign. If signed by a corporate officer, partner, guardian, tax matters partner, executor, receiver, administrator, trustee, or party other than the taxpayer, I certify that I have the authority to execute Form 4506-T on behalf of the taxpayer. Note. For transcripts being sent to a third party, this form must be received within 120 days of the signature date. Phone number of taxpayer on line 1a or 2a Sign Here Signature (see instructions) Title (if line 1a above is a corporation, partnership, estate, or trust) Date Spouse s signature For Privacy Act and Paperwork Reduction Act Notice, see page 2. Cat. No N Form 4506-T (Rev ) Date

25 Form 4506-T (Rev ) Page 2 Section references are to the Internal Revenue Code unless otherwise noted. Future Developments For the latest information about Form 4506-T and its instructions, go to Information about any recent developments affecting Form 4506-T (such as legislation enacted after we released it) will be posted on that page. General Instructions CAUTION. Do not sign this form unless all applicable lines have been completed. Purpose of form. Use Form 4506-T to request tax return information. You can also designate (on line 5) a third party to receive the information. Taxpayers using a tax year beginning in one calendar year and ending in the following year (fiscal tax year) must file Form 4506-T to request a return transcript. Note. If you are unsure of which type of transcript you need, request the Record of Account, as it provides the most detailed information. Tip. Use Form 4506, Request for Copy of Tax Return, to request copies of tax returns. Automated transcript request. You can quickly request transcripts by using our automated self-help service tools. Please visit us at IRS.gov and click on Order a Return or Account Transcript or call Where to file. Mail or fax Form 4506-T to the address below for the state you lived in, or the state your business was in, when that return was filed. There are two address charts: one for individual transcripts (Form 1040 series and Form W-2) and one for all other transcripts. If you are requesting more than one transcript or other product and the chart below shows two different addresses, send your request to the address based on the address of your most recent return. Chart for individual transcripts (Form 1040 series and Form W-2 and Form 1099) If you filed an individual return Mail or fax to: and lived in: Alabama, Kentucky, Louisiana, Mississippi, Tennessee, Texas, a foreign country, American Samoa, Puerto Rico, Guam, the Commonwealth of the Northern Mariana Islands, the U.S. Virgin Islands, or A.P.O. or F.P.O. address Alaska, Arizona, Arkansas, California, Colorado, Hawaii, Idaho, Illinois, Indiana, Iowa, Kansas, Michigan, Minnesota, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Utah, Washington, Wisconsin, Wyoming Connecticut, Delaware, District of Columbia, Florida, Georgia, Maine, Maryland, Massachusetts, Missouri, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, West Virginia Internal Revenue Service RAIVS Team Stop 6716 AUSC Austin, TX Internal Revenue Service RAIVS Team Stop Fresno, CA Internal Revenue Service RAIVS Team Stop 6705 P-6 Kansas City, MO Chart for all other transcripts If you lived in or your business Mail or fax to: was in: Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, Texas, Utah, Washington, Wyoming, a foreign country, or A.P.O. or F.P.O. address Connecticut, Delaware, District of Columbia, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Hampshire, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia, Wisconsin Internal Revenue Service RAIVS Team P.O. Box 9941 Mail Stop 6734 Ogden, UT Internal Revenue Service RAIVS Team P.O. Box Stop 2800 F Cincinnati, OH Line 1b. Enter your employer identification number (EIN) if your request relates to a business return. Otherwise, enter the first social security number (SSN) or your individual taxpayer identification number (ITIN) shown on the return. For example, if you are requesting Form 1040 that includes Schedule C (Form 1040), enter your SSN. Line 3. Enter your current address. If you use a P. O. box, include it on this line. Line 4. Enter the address shown on the last return filed if different from the address entered on line 3. Note. If the address on lines 3 and 4 are different and you have not changed your address with the IRS, file Form 8822, Change of Address. For a business address, file Form 8822-B, Change of Address or Responsible Party Business. Line 6. Enter only one tax form number per request. Signature and date. Form 4506-T must be signed and dated by the taxpayer listed on line 1a or 2a. If you completed line 5 requesting the information be sent to a third party, the IRS must receive Form 4506-T within 120 days of the date signed by the taxpayer or it will be rejected. Ensure that all applicable lines are completed before signing. Individuals. Transcripts of jointly filed tax returns may be furnished to either spouse. Only one signature is required. Sign Form 4506-T exactly as your name appeared on the original return. If you changed your name, also sign your current name. Corporations. Generally, Form 4506-T can be signed by: (1) an officer having legal authority to bind the corporation, (2) any person designated by the board of directors or other governing body, or (3) any officer or employee on written request by any principal officer and attested to by the secretary or other officer. Partnerships. Generally, Form 4506-T can be signed by any person who was a member of the partnership during any part of the tax period requested on line 9. All others. See section 6103(e) if the taxpayer has died, is insolvent, is a dissolved corporation, or if a trustee, guardian, executor, receiver, or administrator is acting for the taxpayer. Documentation. For entities other than individuals, you must attach the authorization document. For example, this could be the letter from the principal officer authorizing an employee of the corporation or the letters testamentary authorizing an individual to act for an estate. Signature by a representative. A representative can sign Form 4506-T for a taxpayer only if the taxpayer has specifically delegated this authority to the representative on Form 2848, line 5. The representative must attach Form 2848 showing the delegation to Form 4506-T. Privacy Act and Paperwork Reduction Act Notice. We ask for the information on this form to establish your right to gain access to the requested tax information under the Internal Revenue Code. We need this information to properly identify the tax information and respond to your request. You are not required to request any transcript; if you do request a transcript, sections 6103 and 6109 and their regulations require you to provide this information, including your SSN or EIN. If you do not provide this information, we may not be able to process your request. Providing false or fraudulent information may subject you to penalties. Routine uses of this information include giving it to the Department of Justice for civil and criminal litigation, and cities, states, the District of Columbia, and U.S. commonwealths and possessions for use in administering their tax laws. We may also disclose this information to other countries under a tax treaty, to federal and state agencies to enforce federal nontax criminal laws, or to federal law enforcement and intelligence agencies to combat terrorism. You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return information are confidential, as required by section The time needed to complete and file Form 4506-T will vary depending on individual circumstances. The estimated average time is: Learning about the law or the form, 10 min.; Preparing the form, 12 min.; and Copying, assembling, and sending the form to the IRS, 20 min. If you have comments concerning the accuracy of these time estimates or suggestions for making Form 4506-T simpler, we would be happy to hear from you. You can write to: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. NW, IR-6526 Washington, DC Do not send the form to this address. Instead, see Where to file on this page.

26 CREDIT REPORT AUTHORIZATION & RELEASE Authorization is hereby granted to ERS Nationwide Inc./Elite Mortgage ( Elite ) to obtain a standard factual data or tri-merge credit report through a credit reporting agency chosen by Elite. My signature below authorizes the release to the credit reporting agency a copy of my credit application, and auth9rizes the credit reporting agency to obtain information regarding my employment, savings accounts, and outstanding credit accounts, mortgages, auto loans, personal loans, charge cards, credit union, etc. Authorization is further granted to the reporting agency to use a photo static reproduction of this authorization if necessary to obtain any information regarding the above-mentioned. Applicant(s) hereby request a copy of the credit report obtained with any possible derogatory information be sent to the address of the present residence and holds Elite and any credit reporting organization harmless in so mailing the copy requested. Any reproduction of this credit report authorization and release made by reliable means (for example, a photocopy of facsimile) is considered an original. Applicant hereby authorizes Elite to charge the following credit card in connection with obtain abovereferenced credit report. CREDIT CARD INFORMATION Card Type: Visa MasterCard American Express Discover Name on Card: Billing Address: Billing City, State and Zip: Card No. Exp. Date: Security Code/Verification No. Phone: Cardholder Signature: Date: Borrower Signature Borrower Printed Name Date Borrower Signature Borrower Printed Name Date

27 APPRAISAL ORDER CREDIT CARD AUTHORIZATION Authorization is hereby granted to Elite Commercial & Development/Elite Mortgage ( Elite ) to use this Credit Card Authorization form to charge the listed credit card for costs of the appraisal for the property listed below. My signature on this form will serve as my authorized signature, and will remain in effect for six months from date of signature. I agree to pay the appraisal cost(s) as invoiced by the appraisal company. Elite shall confirm the actual cost(s) after the order is placed. If for any reason Elite is unable to charge my credit cards as authorized by this form, I understand that my obligation to pay for the Appraisal Report and appraisal cost(s) will be my sole responsibility and will not be excused or waived in any way. CREDIT CARD INFORMATION Card Type: Visa MasterCard American Express Discover Name on Card: Billing Address: Billing City, State and Zip: Card No. Exp. Date: Security Code/Verification No. Phone: Cardholder Signature: Date: Property Address:

28 Other Documents

29 EAST WEST BANK Commercial Real Estate Loan Application LOAN APPLIED FOR LOAN AMOUNT INTEREST RATE TERM LOAN TYPE OWNERSHIP TYPE $ % (MOS) [ ] FIXED [ ] ARM [ ] INVESTMENT [ ] OWNER/USER BORROWER INFORMATION BORROWER TIN or SOCIAL SECURITY #: BORROWER'S MAILING ADDRESS: BORROWER(S) WILL BE: [ ] INDIVIDUAL(S) [ ] CORPORATION [ ] FAM. TRUST [ ] LLC [ ] PARTNERSHIP [ ] IRREV. TRUST [ ] OTHER MAIN CONTACT: PH #. FAX #: SUBJECT PROPERTY INFORMATION STREET ADDRESS CITY COUNTY STATE ZIP CODE ZONING: [ ] LEGAL/CONFORMING [ ] LEGAL/NONCONFORMING [ ] NONCONFORMING [ ] OTHER: PROPERTY TYPE: [ ] MFR [ ] RETAIL [ ] OFFICE [ ] LIGHT INDUSTRIAL [ ] OTHER: CONSTRUCTED: [ ] WOOD FRAME/STUCCO [ ] REINFORCED BRICK [ ] CONCRETE BLOCK [ ] CONCRETE TILT-UP [ ] METAL [ ] PURCHASE OF SUBJECT PROPERTY SALES PRICE CASH DOWN PAYMENT SOURCE OF DOWN PAYMENT (CASH DOWN AND/OR OTHER - EXPLAIN); $ $ SUBORDINATE LENDER/CONTACT NAME: TERM (MOS) INT RATE SUBORDINATE FINANCING AMOUNT: PH#: % [ ] REFINANCE OF SUBJECT PROPERTY DATE ACQUIRED PURCHASE PRICE CURRENT VALUE DESCRIBE SIGNIFICANT REPAIRS AND/OR IMPROVEMENTS MADE AND/OR TO BE MADE (ON CONSTRUCTION TAKE-OUT, ATTACH A COMPLETE COST BREAKDOWN); $ $ FUNDS TO BE USED TO PAY: LIEN BALANCE MONTHLY PAYMENT ORIGINATION DATE INTEREST RATE MATURITY DATE LIEN POSITION LENDER NAME $ $ REMAINING FUNDS TO BE USED FOR: PROPERTY INCOME APARTMENT UNIT MIX PROFORMA UNITS BEDROOMS BATH AVG. SQ. FT. Mo. RENT Units Vacant Rent Control GROSS RENTAL INCOME $ OTHER INCOME: ( ) $ LESS VACANCY ( %) $ EFFECTIVE GROSS INCOME $ OPERATING EXPENSES: $ CAPITAL EXPENDITURES: $ NET OPERATING INCOME: $ PROPERTY DESCRIPTION COMMERCIAL UNIT MIX # of Total Units: Tenant Net Rentable Area Lease Exp. Rent/Mos. Tenant Pays NNN Tenant Pays CAM # of Parking Spaces: # of Stories: Lot Size (SF) Bulding Size (SF) Year Built:

30 EAST WEST BANK Commercial Real Estate Loan Application (Page 2) THE HOUSING FINANCIAL DISCRIMINATION ACT OF 1977 FAIR LENDING NOTICE It is illegal to discriminate in the provision of or in the availability of financial assistance because of the consideration of: 1. Trends, characteristics or conditions in the neighborhood or geographic area surrounding a housing accommodation, unless the financial institution can demonstrate in the particular case that such consideration is required to avoid an unsafe and unsound business practice; or, 2. Race, color, religion, sex, marital status, national origin or ancestry. It is illegal to consider the racial, ethnic, religious or national origin composition of a neighborhood or geographical area surrounding a housing accommodation or whether or not such composition is undergoing change, or is expected to undergo change, in appraising a housing accommodation or in determining whether or not, or under what terms and conditions, to provide financial assistance. These provisions govern financial assistance for the purpose of the purchase, construction, rehabilitation or refinancing of one-to-four residences occupied by the owner and for the purpose of the home improvement of any one to four unit family residence. If you have any questions about your rights, or if you wish to file a complaint, contact the management of this financial institution or: DEPARTMENT OF FINANCIAL INSTITUTION 300 South Spring Street, Suite 15513, Los Angeles, CA or 111 Pine Street, Suite 1100, San Francisco, California, CA BORROWER (S) SIGNATURE BY SIGNING BELOW, I ACKNOWLEDGE THAT I HAVE READ, RECEIVED AND UNDERSTOOD THIS DISCLOSURE Borrower Date Co-Borrower Date

31 EAST WEST BANK Commercial Real Estate Loan Application (Page 3) BORROWER QUESTIONNAIRE *YES NO 1. Are there any issues listed, pending against the business or any of its affiliates or principal owners? a. Lawsuits b. Judgments c. Liens d. Foreclosure/foreclosure proceedings Have there ever been any liens or stop notices filed on any construction job(s)? Has the business or any of its affiliates or principal owners ever filed bankruptcy, including Chapter 11? Has the business or any of its affiliates or principal owners ever lost any real estate through a foreclosure proceeding or deeded a property to a lender in lieu of foreclosure? Are any of the subject property's real estate taxes, bonds and/or assessments not paid current? Are there any easements or encroachments affecting the subject property that could negatively impact value? Are there any environmental matters affecting the subject property or any adjacent properties? Is the subject property in violation of any current City, County and State building ordinances, requirements for zoning, fire and earthquake? Are any of the leases not currently in full force and effecting the subject property? Does any breach exist on the part of lesser or lessee under the leases and/or does any lessee have any offset, credit or claim against lessor? Are there any lease provisions, options, rights, or contracts existing with respect to the subject property other than disclosed on the lease summary, including sub-leases? Does the fixed monthly rent reflected on the lease summary include any operating expense reimbursement or reimbursements for tenant improvements? *If any of the above questions are answered "yes", attach separate explanation. BORROWER (S) SIGNATURE The undersigned applies for the loan indicated in this application to be secured by a first mortgage or deed of trust on the property described herein, and represents that the property will not be used for any illegal or restricted purpose, and that all statements made in this application and the attachments, are true and complete and are made for the purpose of obtaining the loan. Verification may be obtained from any source named in this application and/or in attachments. I/We fully understand that it is a federal crime punishable by fine or imprisonment, or both, to knowingly make any false statements concerning any of the above facts as applicable under the provisions of Title 18, United States Code, Section Signature and Title Date Signature and Title Date DOCUMENTATION REQUEST This is not a complete Loan Application. A complete Loan Application includes but is not limited to, a check for Application Fee, and Business Income Statements for Owner Occupied Propertiesl. Subsequently, please provide the items listed below as specified by Borrower Type. ALL BORROWER TYPES Personal Financial Statement YTD Operating History (P & L) Two full calendar years Operating History Current Rent Roll / Lease Agreements Environmental Questionnaire Environmential Insurance Questionnaire Purchase contract & Escrow Instructions (Purch) Color Photos Borrower's Last two years' Feder Tax Returns, including K-1 Schedules Guarantor's Last two years' Feder Tax Returns, including K-1 Schedules Borrower Type: Limited Liability Company Borrower Type: Partnership Borrower Type: Corporation Operating Agreement Executed Partnership Agreement Articles of Incorporation Articles of Organization (Form LLC-1) Filed LP1 (Cert. Of Limited Partnerships) Bylaws Copy of Statement by Domestic Stock Borrower Type: Individual(s) or Fam.Trust Corporation filed w/ the Secretary of State. Copies of 2 most recent months bank acct statements Trust Agreement (for Fam. Trust only)

32 Borrower s Checklist for Commercial Real Estate Loans 1. Commercial Real Estate Loan Application 2. Reg. B Disclosure 3. Personal Financial Statement 4. Rent Roll 5. Property Operating History 6. Hazard Insurance Authorization and Auto-Pay Authorization 7. Credit Information Release 8. Environmental Insurance Questionnaire 9. EWB Environmental Questionnaire 10. Borrower/Guarantor s formation documents: a. Article of Incorporation/Article of Organization b. By-laws/Operating Agreement c. Tax ID Additional Information Needed from Borrower for Full Doc. Program: 1. Borrower/Guarantor s last 3-year financial statements 2. Borrower/Guarantor s last 3-year tax returns

33 135 N. Los Robles Pasadena, CA Your Right to Request Specific Reasons for Credit Denial East West Bank is committed to providing the highest level of service to all applicants. We firmly hold to the requirements and ideals of fair lending. If your application for business credit is denied, you have the right to a written statement of the specific reasons for the denial. To obtain the statement, please contact: Credit Review Manager East West Bank 9300 Flair Drive, 2 nd Floor El Monte, CA (626) Fax (626) You should contact the Credit Review Manager within 60 days from the date you are notified of our decision. We will send you a written statement of reasons for the denial within 30 days of receiving your request for the statement. NOTICE: The federal Equal Credit Opportunity Act prohibits creditors from discriminating against credit applicants on the basis of race, color, religion, national origin, sex, marital status, age (provided the applicant has the capacity to enter into a binding contract); because all or part of the applicant s income derives from any public assistance program; or because the applicant has in good faith exercised any right under the Consumer Credit Protection Act. The federal agency that administers compliance with this law concerning this creditor is the Federal Reserve Bank of San Francisco, P.O. Box 7702, San Francisco, California If you have any questions, please do not hesitate to speak to a loan officer or the Credit Review Manager. Again, thank you for your consideration. Application Reg. B Disclosure.doc

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35 PERSONAL FINANCIAL STATEMENT FOR COMMERCIAL LOANS Date: IMPORTANT INFORMATION ABOUT PROCEDURES FOR OPENING A NEW ACCOUNT: To help the government fight the funding of terrorism and money laundering activities, Federal law requires all financial institutions to obtain, verify and record information that identifies each person who opens an account. What this means to you: When you open an account, we will ask for your name, address, date of birth, and other information that will allow us to identify you. We may also ask to see your driver s license or other identifying documents. LOAN INFORMATION LOAN AMOUNT INTEREST RATE TERM (MOS) LOAN TYPE OWNERSHIP TYPE $ % [ ] FIXED [ ] ARM [ ] INVESTMENT [ ] OWNER/USER SECTION A INFORMATION REGARDING APPLICANT / GUARANTOR NAME DATE OF BIRTH SOCIAL SECURITY NUMBER STREET ADDRESS CITY STATE ZIP OWN RENT (Per Month) Other $ AT CURRENT ADDRESS SINCE (MM/YY) HOME TELEPHONE NUMBER FAX NUMBER OR EMPLOYED BY POSITION OR TYPE OF BUSINESS, IF SELF- EMPLOYED YEARS WITH COMPANY WORK TELEPHONE NUMBER EMPLOYER S ADDRESS NUMBER OF DEPENDENTS AGES OF DEPENDENTS SECTION B INFORMATION REGARDING JOINT APPLICANT NAME DATE OF BIRTH SOCIAL SECURITY NUMBER RELATIONSHIP TO APPLICANT (IF ANY): STREET ADDRESS CITY STATE ZIP OWN RENT (Per Month) Other $ AT CURRENT ADDRESS SINCE (MM/YY) HOME TELEPHONE NUMBER FAX NUMBER OR EMPLOYED BY POSITION OR TYPE OF BUSINESS, IF SELF- EMPLOYED YEARS WITH COMPANY WORK TELEPHONE NUMBER EMPLOYER S ADDRESS NUMBER OF DEPENDENTS AGES OF DEPENDENTS SECTION C MARITAL STATUS 1. APPLICANT / GUARANTOR Unmarried (Including single, divorced and widowed) Separated Married 2. CO-APPLICANT Unmarried (Including single, divorced and widowed) Separated Married SECTION D SUBJECT PROPERTY INFORMATION STREET ADDRESS CITY STATE ZIP COUNTY PROPERTY TYPE: Multi-family Retail Office Light Industrial Other: PURCHASE OF SUBJECT PROPERTY SALES PRICE CASH DOWN PAYMENT SOURCE OF DOWN PAYMENT (CASH DOWN AND/OR OTHER EXPLAIN): SUBORDINATE LENDING/CONTACT NAME TERM (MOS) INT RATE SUBORDINATE FINANCING AMOUNT REVISED Page 1 of 4

36 SECTION D SUBJECT PROPERTY INFORMATION (continued) REFINANCE OF SUBJECT PROPERTY DATE ACQUIRED PURCHASE PRICE CURRENT VALUE DESCRIBE SIGNIFICANT REPAIRS AND/OR IMPROVEMENTS MADE AND/OR TO MADE (ON CONSTRUCTION TAKE-OUT, ATTACH A COMPLETE COST BREAKDOWN): FUNDS TO BE USED TO PAY: LENDER NAME $ $ LIEN BALANCE MONTHLY PAYMENT ORIGINATION DATE INTEREST RATE MATURITY DATE LIEN POSITION $ $ REMAINING FUNDS TO BE USED FOR: $ $ E. FINANCIAL STATEMENT (As of Date ) Cash in East West Bank ASSETS CURRENT VALUE LIABILITIES MO. PYMNT. $ Total Revolving Credit Balance $ $ BALANCE DUE Total Cash in other Banks (Name of Bank): $ Automobile Loans $ $ Retirement Accounts (IRA, SEP, Keogh, 401-K) Stocks/Bonds/Mutual Funds (Marketable) Residence Market Value Other Real Estate Market Value Automobiles (Year and Make) $ $ $ $ $ Other Installment Loans Balance $ $ First Mortgage on Residence $ $ Other Mortgage(s) on Residence $ $ Mortgage(s) on Other Real Estate $ $ Taxes Payable (Describe) $ $ Other Assets (Describe) $ Other Liabilities (Describe) $ $ Total Assets $ Total Liabilities $ (-) Minus Total Liabilities $ LIFE INSURANCE (=) Net Worth $ AMOUNT OF LIFE INSURANCE $ BENEFICIARY NAME ANNUAL PREMIUM CASH SURRENDER VALUE SECURITIES OWNED (List additional stocks on reverse side under Additional Information.) No. of Shares or Bond Amounts Securities Description Registered Owner Pledged Exchanges Present Yes No ( NYSE, AMEX, OTC) Market Value REVISED Page 2 of 4

37 REAL ESTATE HOLDINGS (Attach separate schedule for additional properties) Property Type: SF = Single Family MF = Multiple Family C = Commercial / Industrial L= Land / Acreage Property Type RESIDENCE SF MF VAC. RENTAL SF MF C L VAC. RENTAL SF MF C L VAC. RENTAL SF MF C L Property Address Street City Percentage of Ownership % % % % Indicate Type of Ownership TR = Trust CP = Community Property JT = Joint Tenancy TC = Tenants in Common SP = Separate Property Date Purchase Purchase Price $ $ $ $ Estimated Market Value $ $ $ $ First Mortgage Balance $ $ $ $ First Mortgagor Name All Other Mortgages/Liens $ $ $ $ Annual Property Taxes/ Property Insurance $ $ $ $ Monthly Mortgage Payment(s) $ $ $ $ Mortgage Maturity Year Gross Monthly Rent $ $ $ ANNUAL INCOME (For Year ) Income Sources - Income from alimony, child support or separate maintenance does not have to be stated unless you want it considered. Your Gross Annual Salary $ Co-Applicant Gross Annual Salary $ Gross Annual Rental Income $ Other Income (Itemize) Total Annual Gross Income $ (-) Minus Total Annual Expenditures $ (=) Net Spendable Income $ $ ANNUAL EXPENDITURES ( For Year ) Real Estate Loan Pymnt(s) Residence $ Real Estate Rent/Lease Pymnt(s) $ Income Taxes $ Insurance Premium (all Types) $ Homeowner Assoc. Fees (Residence) $ Property Taxes (Other) $ Alimony, Child Support, Etc. $ Other (describe installment payments other than real estate) 1. $ 2. $ Total Annual Expenditures $ $ REVISED Page 3 of 4

38 F. GENERAL INFORMATION (If married, these questions apply to both you and your spouse.) Are any assets held in a Trust? Have you ever had a repossession? Have you had a bankruptcy, lien or judgment against you in the past seven years? Have you been a principal or guarantor of a firm that declared bankruptcy in the past seven years? Are any assets pledged or debts secured except as shown? Are you leasing any real or personal property? Do you anticipate any substantial reductions of your income as listed herein during the term of this loan? YES YES YES YES YES YES YES NO NO NO NO NO NO NO Are you party to any claim, lawsuits or regulatory proceeding? Have you been audited by the IRS in the past three years? If yes, has the audit been settled? Do you guarantee or co-sign any other debt? Do you have any credit or pending loan applications at other financial institutions? Are you an executive officer, director or principal shareholder of any financial institution? Have you ever been convicted of a felony? YES YES YES YES YES YES YES NO NO NO NO NO NO NO If YES to any of the above, please explain: G. SIGNATURES For purposes of obtaining credit: I/We furnish you with the foregoing statement and information, which is a true and correct statement of my/our financial condition as of the date set forth herein. I/We further state that I/we am/are aware that any untrue statement on this application will subject me/us to the full penalties of the law. It is hereby expressly agreed that upon application for further credit, this statement shall have the same force and effect as if delivered as an original statement of my/our financial condition at the time such further credit is requested. AUTHORIZATION TO OBTAIN AND RELEASE BORROWER S FINANCIAL INFORMATION For value received and in consideration of the granting or extension of any loan by East West Bank ("Bank"), in the interest of servicing my/our loan(s), ensuring the continuing validity of any guaranty executed on my/our loan(s), and providing better service to me/us, I/we authorize the Bank to review other financial information about me/us including employment and credit reporting information, and to disclose my financial information with third parties to the extent permitted by law. SIGNATURE OF APPLICANT DATE SIGNATURE OF CO-APPLICANT DATE REVISED Page 4 of 4

39 APPLICANT STATUS FORM * Whether married, unmarried, or separated, you may request individual credit by applying alone. If you intend to rely on your spouse's future earnings to qualify for this credit, please apply for joint credit. * Persons married to each other may request joint credit by applying together on one application. * Persons not married to each other may request joint credit by completing separate applications and submitting their applications together * If there is more than one guarantor, please submit a separate Applicant Status Form for each guarantor. Your credit request will not be considered complete until you check one of the following boxes and sign below. I am applying for individual credit in my own name and I am relying on my own income or assets, and not the income or assets of another person as the basis for the repayment of the credit requested. I intend to apply for individual credit: Applicant This is an application for joint credit with another person. We intend to apply for joint credit: Applicant Co-applicant I am applying for individual credit, but I am also relying on income from an additional source such as: alimony, child support, or separate maintenance, or on the income or assts of another person as the basis for repayment of the credit requested. I understand that I may be required to provide information about the person on whose alimony, support, or maintenance payments or assets I am relying upon. I intend to apply for individual credit and I am relying on an additional source of income: Applicant I am applying as a guarantor. Guarantor

40 East West Bank Rent Roll Property: Borrower: As of: Loan #: Unit# Tenant Name Bdr/Ba Monthly Rent Market Rents Type of Lease * CAM Lease Inception Lease Expiration Options / / / / / / / / / / / / / / / / / / / / / / Total Rental Income $ - $ - Laundry/Month Parking Other Total Monthly Income $ - $ - Total Annual Income $ - $ - I (we) hereby represent and warrant that the foregoing Statement is submitted for the purpose of obtaining a loan, and that it is certified as true and correct by the undersigned, under penalty of perjury. Borrower Date Borrower Date Date

41 East West Bank Property Operating History Property Address: Borrower: Instructions: Please provide complete operating statements for the previous two full years and for the current year end and year to date You may attach your own operating statement format or provide your Schedule E's from your Federal Income Tax returns. If your property is new, please complete the YTD operating statement and provide a 12 month proforma in one of the historcial columns. Annual Income Previous 2 Year Previous 1 Year YTD thru Rental Income Collected Laundry Income Garage Income Other Income Total Income Collected Annual Expenses Previous 2 Year Previous 1 Year YTD thru Taxes Liscence/Accounting/Legal Insurance Utilities Rubbish Pest Control Security Gardener Resident Manager Office Management Supplies Pool Service Elevator Cleaning Expense Advertising Telephone Building Maint. & Repair Painting & Decorating Other/Rent Control Total Expenses Total Expenses Net Operating Income I certify under penalty of perjury that the information herein is true and correct as of: Date Borrower Date

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43 CREDIT INFORMATION RELEASE I/We, the undersigned applicant(s) agree that the loan application being made and the information on it will be used by East West Bank and by any third party to whom the loan application information is referred to for further processing. I/We consent to the shared use of the information I/We provide, and agree that inquiries as to credit history, bank and depository accounts, and mortgage borrowing history and other reverent information can be obtained by any such entity assisting in the processing of the loan application and so shared among them in the processing of the application. I/We also agree this document, or copies of it, can be disclosed to the other parties from whom the necessary credit information must be obtained. I/We also agree that should the loan be granted, any file or loan information may be released to any party who may purchase the loan, and shared with any credit reporting agencies and others who may have a lawful need for it. Print Name of Applicant Signature Date Social Security Number: Print Name of Applicant: Signature Date Social Security Number:

44 EAST WEST BANK ENVIRONMENTAL QUESTIONNAIRE AND DISCLOSURE STATEMENT The purpose of this questionnaire is to provide environmental information to East-West Bank ("Bank"). This information will be considered as part of the loan application. Please respond to every question. Clarifications to answers should be made in the space immediately following the question. Where space is inadequate, please attach additional pages as needed referring to the appropriate question number. In cases where an answer is not available or appropriate, please indicate in the space provided. This questionnaire will be used as a disclosure document and as such must be signed by the borrower. Information provided will be for Bank use only. GENERAL INFORMATION Borrower Name: Property Address: Is the property Owner Occupied? Yes No Will the property be purchased with funds provided? Yes No Have any environmental site assessments, audits or investigations been completed for this site? Yes No If Yes, list here and attach a copy SITE INFORMATION 1. Briefly describe current site use (i.e., business activities, products made, processes etc.) 2. Are there any changes of use intended for the property? Yes No If Yes, describe change from use described in question 1. above. 3. Are any of the following used or stored on site? If Yes, Please check those that apply and describe. Petroleum products Yes No Motor vehicle fuels Yes No Hazardous materials(in quantities requiring local/county fire department notification or permitting) Yes No 4. If the site is not owner-occupied and has tenants, please list tenants (attach list if necessary). Business/Tenant Name Dates Dates Type of Use From: To: From: To: From: To: From: To: SITE HISTORY 1. Describe former site uses, owner and/or tenants, along with dates chronologically listed, with most recent use first. For the following sections please mark to the best of your knowledge, whether any of the adjacent sites are being used for any of the following industries/services? (Please check all those that apply) ADJACENT LAND USE Raw Material Yes No Gas & Oil Exploration & Production Yes No AGRICULTURE AND PROCESSING Farms Wood Processing & Preserving Food Processing (Canning & Preserving Nurseries Meat Products & Rendering Fertilizers (Manufact. & Distrib.) Pulp & Paper Mills Dairy Products Processing Pesticides/herbicides Manufact. & Distb. Orchard Groves Lumber Grain Mills Vineyards Lot Feeds Other EWBMLP13 - Rev. 8/19/97 1

45 Manufacturing Chemical Manuf. Transportation Energy Waste Disposal Commercial Foundries Oil refineries Airports Nuclear Waste Transfer Photochemical Non-Ferrous Mtl. Plastics & Oil & Gas Oil / Gas Waste Treatment Auto Repair Synthetics Pipelines Fired Power Plants Facilities Shops Glass & Asbestos Organic Chemicals Ship Terminals (Harbors) Landfills Automobile Dealerships Nuclear Products Soaps & Railroad Yards Scrap Yards Paint Detergents Batteries Acids & Caustics Trucking Terminals Auto/Truck & Equip. Fleet Svc Facilities Rubber Products Asphalt Plants Gas Stations Dry Cleaners Aerospace Equip. Leather Tanning & Printing Finishing Heavy Equip/ Mach & Vehicles Iron & Steel Textiles Cement Paints Insulation Electroplating Computer & Semi Conductors ASBESTOS 1. Were any of the buildings located on-site constructed prior to 1980? Yes No If Yes, please describe the type of building and approximate square footage. Square Footage # 2. For any of the buildings constructed prior to 1980, has there been any major internal renovation work performed after 1980? Do Not Know Yes No If Yes, briefly describe 3. Please indicate if site buildings contain any of the following building materials. Type Approximate Quantity Acoustical (cottage cheese ceiling) Insulated piping Spray-applied fire-proofing Vinyl floor covering 4. Any buildings/other improvements located on the property known to contain asbestos? Yes No If Yes, please describe. 5. Has an asbestos survey or study ever been conducted to assess the type, amount, location, condition, and/or cost or desirability of removal or encapsulation of asbestos? Do not know Yes No If Yes, please describe and attach a copy of each survey, study or report. EWBMLP13 - Rev. 8/19/97 2

46 POLYCHLORINATED BIPHENYL (PCB) 1. Are any electrical transformers, capacitors, or other equipment which may contain PCB s, present on the site? Yes No If Yes, please describe 2. Is the equipment listed in 1. owned by a public utility or by the property owner? Yes No Please describe. 3. Has any testing for PCB's been performed on equipment listed in 1. Above? If so, please provide results. Don t Know Yes No 4. Has there ever been a PCB leak, spill, or other related incident at the property? Don t Know Yes No If so, please describe occurrence and corrective actions. STORAGE, TANKS, DRUMS, PIPELINES A, UNDERGROUND STORAGE TANKS 1. Are there any underground storage tanks (USTs) located on the property? Yes No If so, please provide information below. Size (Gallons) Construction (Steel, Fiberglass etc.) Double or Single Wall Age Product Stored (Gas, Diesel, Solvent Etc. 2. How are the UST s being monitored for leaks? Please check as appropriate. Inventory Reconciliation Volumetric/Integrity Testing Groundwater Wells Electronic Tank Level Monitor Electronic Interstitial Monitoring (double-walled tank only) Soil/Vapor Monitoring Wells Other Exempt - Give reason for exemption 3. Were there any UST s closed or removed from the site? Don t Know Yes No If so, provide information on tanks as requested in 1. above plus the date of removal. Also, please provide description and copy of tank closure report. 4. Have any site investigations been performed related to the past or present use of UST s at the site? If so, please describe and attach a copy of the investigation report. Don t Know Yes No 5. Are any tanks known to leak now or to have leaked in the past? Don t Know Yes No If so, please describe. EWBMLP13 - Rev. 8/19/97 3

47 ABOVE GROUND STORAGE TANKS 1. Are there any permanent above-ground storage tanks (AGTs) located on the property? Yes No If so, please attach list of tanks including size and product stored. Size (Gallons) Construction (Steel, Fiberglass etc.) Double or Single Wall Age Product Stored (Gas, Diesel, Solvent Etc. 2. Are the AGTs currently monitored for leakage? Yes No Please describe monitoring system. 3. Are any chemicals stored on the property in drums or other containers? Yes No If yes, please attach a listing of the types, quantities stored, and the types and condition of the containers. 4. Are any drums or other containers known to be leaking now or known to have leaked in the past? Don t Know Yes No If so, please describe 5. Are any above or below-ground pipelines (including water and sanitary sewers) located on the property? Yes No If so, please describe 6. Have any pipelines been inspected or tested for leakage? Don t Know Yes No If so, please describe and attach results. 7. Are any pipelines known to leak now or to have leaked in the past? Don t Know Yes No If so, please describe, AIR EMISSIONS 1. Are air emissions from facilities located at the site subject to air pollution control regulations? Yes No If so, please describe including type of emission, type of burners, fuel, air pollution control devices, etc. 2. Are air emissions monitored? Yes No If so, describe and attach requirements and copy of recent monitoring results. 3. Are appropriate air quality permits current? Yes No WATER AND WASTE WATER 1. What is the source of water supply for the site? Public On-Site Well Other Describe Other EWBMLP13 - Rev. 8/19/97 4

48 2. What is the water used for at the site? Irrigation Sanitary Facility Domestic Other Describe Other 3. What are the sources of waste water? Please describe each source including waste constituents or concern and volume of water generated. 4. What site facilities, if any, are present for the handling of waste water? Above Ground Tanks Underground Tanks Vats Sumps Clarifiers Trenches Ponds Treatment Systems Describe 5. How is waste water disposed of and what is the average daily flow? Public Sewer Septic System Dry Well Other Describe Other. 6. Have any citations been received for any discharge violations? Yes No If so, please describe. 7. Please attach copies of waste water treatment and/or waste water discharge permits pertaining to the property. WASTE GENERATION STORAGE AND DISPOSAL 1. Please list all hazardous and non-hazardous waste streams generated on site. Waste Description Quantity How Disposed How Often 2. Is there on-site storage of wastes? Yes No If so, please describe storage area. 3. Does the storage area have secondary containment? Yes No If so, please describe 4. Is there any evidence of spills or release? Yes No If so, please describe 5. Have spills or releases occurred in the past? Yes No If so, please describe EWBMLP13 - Rev. 8/19/97 5

49 PESTICIDES/HERBICIDES AND AGRICULTURAL CHEMICALS 1. Have pesticides, herbicides, or other agricultural chemicals ever been applied to the property? Yes No If so, please describe. 2. Have pesticides, herbicides or other agricultural chemicals ever been mixed, formulated, rinsed or disposed of on the property? Yes No If so, please describe. RADON 1. Have radon levels been monitored at the property or any information gathered concerning potential for radon accumulation? Yes No If so, please describe. ENVIRONMENTAL STUDIES, REPORTS, CITATIONS. ENFORCEMENT, AND CLEANUP ACTIONS 1. Have any environmental assessment studies been performed for the site with respect to soil, groundwater, air or site facilities and processes? Yes No If so, please describe briefly and attach complete dated copies of such reports. 2. Has any public agency ever investigated or cited the property for violation or possible violation of any environmental law or commenced enforcement of cleanup action under environmental law with respect to the property? Yes If so, please describe. No 3. Has any public agency ever listed the property as a site requiring or qualifying for cleanup under any environmental law? Yes If so, please describe. No ENVIRONMENTAL PERMITS/FACILITY REQUIREMENTS 1. If any of the following are required to operate your business facilities on-site, please check and attach a copy as applicable. EPA Hazardous Waste Generator ID List # Material Safety Data Sheets (attach a list of chemicals and quantities) NPDES Permit. Hazardous Waste Treatment Storage and Disposal Facility (TSDF) Permit. Underground Storage Tank Use Permit. Air Pollution Control/Emission Permit. Emergency Hazardous Materials Management Plan or Contingency Plan. Asbestos Operations and Maintenance Plan. I, certify on behalf of, (print Name) (applicant) that the foregoing is true and correct to the best of my knowledge. Signature Corporate Title (if applicable) Date EWBMLP13 - Rev. 8/19/97 6

50 East West Bank January 2004 ENVIRONMENTAL INSURANCE QUESTIONNAIRE Borrower Name Property Address: City: County: State: ZIP: Nearest Cross-Street: Borrower Contact Name: Phone: Fax: Borrower Mailing Address: Please reply to all of the questions below based on your knowledge of the property 1) Will this loan finance the purchase of the property? Yes No Is this a refinance? Yes No 2) If a refinance, will this loan refinance an existing EastWest Bank loan? Yes No N/A 3) Is this a construction loan? Yes No 4) Describe the current use(s) of the Property: 5) Describe the past use(s) of the Property. If unknown, so state 6) Describe the intended use(s) of the Property. If same as current, so state: 7) Do any of the following tenants occupy the property, or have they at any time in the past? Dry Cleaner No Yes If yes, when Gas Station No Yes If yes, when Hazardous Waste Generator No Yes If yes, when Manufacturing Facility No Yes If yes, when 8) Have you ever received any Environmental Site Assessment, notice of violation, or other information from any governmental agency, Environmental consultant, or public, or non-profit group that addresses Environmental issues on the property? No Yes If yes, please describe/attach copies: 9) Are there, or have there ever been, any of the following on or beneath the property? a. Underground Storage Tank(s) No Yes If yes, how many: b. Above Ground Storage Tank(s) No Yes If yes, how many: If you answered Yes to either of the above questions, please continue below with all questions. If you answered No to both of the above questions, skip questions c. through l. below. c. Have the Tank(s) been removed? No Yes d. Are the Tank(s) registered? No Yes e. What is (was) the Tank s contents? f. When was the Tank(s) installed? g. Have the Tank(s) been integrity tested? No Yes If yes, when? Did the Tank(s) pass? No Yes 1 of 2

51 EASTWEST BANK h. Has there ever been any evidence of leaking? No Yes If yes, describe corrective action taken: i. Are the Tank(s) covered by a separate insurance policy? No Yes j. Are the Tank(s) covered by a state fund? No Yes k. Are the Tank(s) in compliance with 1998 EPA standards? No Yes l. For Above Ground Tank(s) only: Is there secondary containment? No Yes Disclaimer: In the event that the loan application is approved and your loan is funded, EastWest Bank intends to obtain an environmental insurance policy covering the lender s loan. This environmental insurance is for the benefit of the Bank only and provides no coverage to you as the borrower. This insurance program does not relieve the borrower of any environmental due diligence for your own behalf. You are encouraged to consult with legal counsel concerning your rights and obligations under the Comprehensive Environmental Response, Compensation and Liability Act and other applicable laws as they relate to performance of appropriate inquiry and the innocent landowner defense. The applicant represents that the above statements and facts are true and that no material facts have been suppressed or misstated. Loan Applicant (please print or type) Name: Property Owner (please print or type) Name: X X Signature Date Signature Date If you would like to obtain a premium quote for an environmental insurance policy for yourself, please indicate your interest. Yes, I am interested. Please contact me by Phone: or Fax: SPACE BELOW THIS LINE FOR BANK USE ONLY Anticipated Closing Date: Anticipated Loan Amount: $ Loan Term: years Fully Amortizing? Yes No First Lien? Yes No Loan #: Projected LTV Ratio: % Debt Coverage Ratio: Year Built: Square Footage: Predominate Property Type: (Please Circle One) Warehouse/Light Ind. Office-Hotel Retail Mulit-Family Construction Other: Loan Officer Name: Phone: Fax: EastWest Bank Loan Officer Loan Officer Fax to: Xanh Tran East West Insurance 2 of 2 12/06/2002

52 HARP On This... A Commercial Real Estate and Business Thoughtboard Due Diligence Checklists for Commercial Real Estate Transactions Posted on November 26, 2013 Are you planning to purchase, finance or develop any of the following types of Commercial or Industrial Real Estate? Shopping Center? Office Building? Restaurant/Banquet property? Parking Lot/Parking garage? Retail Store? Gas Station?

53 Manufacturing facility? Distribution Center? Logistics Terminal? Medical Building? Nursing Home? Hotel/Motel? Mixed-Use? Pharmacy? Special Use facility? Other? A KEY element to successfully investing in commercial or industrial real estate is performing an adequate Due Diligence Investigation prior to becoming legally bound to acquire the property. An adequate Due Diligence Investigation will assure awareness of all material facts relevant to the intended use or disposition of the property after closing. The following checklists will help you conduct a focused and meaningful Due Diligence Investigation. BASIC DUE DILIGENCE CONCEPTS CA V E A T EM P T OR: L E T T HE BUY E R BEWA RE. Consumer protection laws applicable to home purchases seldom apply to commercial real estate transactions. The rule that a Buyer must examine, judge, and test for himself, applies to the purchase of commercial real estate. DUE DIL IGENCE : Such a measure of prudence, activity, or assiduity, as is proper to be expected from, and ordinarily exercised by, a reasonable and prudent [person] under the particular circumstances; not measured by any absolute standard, but depending upon the relative facts of the special case. Black s Law Dictionary; West Publishing Company. Contractual representations and warranties are NOT a substitute for Due Diligence. Breach of representations and warranties = Litigation, time and $$$$$. The point of commercial real estate due diligence is to avoid transaction surprises and confirm the Property can be used as intended. WHAT DILIGENCE IS DUE? The scope, intensity and focus of any Due Diligence Investigation of commercial or industrial real estate depends upon the objectives of the party for whom the investigation is conducted. These objectives may vary depending upon whether the investigation is conducted for the

54 benefit of: (i) a Strategic Buyer (or long-term lessee); (ii) a Financial Buyer; (iii) a Developer; or (iv) a Lender. If you are a Seller, understand that to close the transaction your Buyer and its Lender must address all issues material to their respective objectives some of which require information only you, as Owner, can adequately provide. GENE RA L OBJE CT IVES: (i) A Strategic Buyer (or long-term lessee) is acquiring the property for its own use and must verify that the property is suitable for that intended use. (ii) A Financial Buyer is acquiring the property for the expected return on investment generated by the property s anticipated revenue stream, and must determine the amount, velocity and durability of the revenue stream. A sophisticated Financial Buyer will likely calculate its yield based upon discounted cash-flows rather than the much less precise capitalization rate ( Cap. Rate ), and will need adequate financial information to do so. (iii) A Developer is seeking to add value by changing the character or use of the property usually with a short-term to intermediate-term exit strategy to dispose of the property; although, a Developer might plan to hold the property long term as a Financial Buyer after development or redevelopment. The Developer must focus on whether the planned change in character or use can be accomplished in a cost-effective manner. (iv) A Lender is seeking to establish two basic lending criteria: (1) Ability to Repay The ability of the property to generate sufficient revenue to repay the loan on a timely basis; and (2) Sufficiency of Collateral The objective disposal value of the collateral in the event of a loan default, to assure adequate funds to repay the loan, carrying costs and costs of collection in the event forced collection becomes necessary. The amount of diligent inquiry due to be expended (i.e. Due Diligence ) to investigate any particular commercial or industrial real estate project is the amount of inquiry required to answer each of the following questions to the extent relevant to the objectives of the party conducting the investigation: I. THE PROPERTY: 1. Exactly what PROPERTY does Purchaser believe it is acquiring? Land?

55 Building? Fixtures? Other Improvements? Other Rights? The entire fee title interest including all air rights and subterranean rights? All development rights? 2. What is Purchaser s planned use of the Property? 3. Does the physical condition of the Property permit use as planned? Commercially adequate access to public streets and ways? Sufficient parking? Structural condition of improvements? Environmental contamination? Innocent Purchaser defense vs. exemption from liability All Appropriate Inquiry 4. Is there any legal restriction to Purchaser s use of the Property as planned? Zoning? Private land use controls? Americans with Disabilities Act? Availability of licenses? Liquor license? Entertainment license? Outdoor dining license?

56 Drive through windows permitted? Other impediments? 5. How much does Purchaser expect to pay for the property? 6. Is there any condition on or within the Property that is likely to increase Purchaser s effective cost to acquire or use the Property? Property owner s assessments? Real estate tax in line with value? Special Assessment? Required user fees for necessary amenities? Drainage? Access? Parking? Other? 7. Any encroachments onto the Property, or from the Property onto other lands? 8. Are there any encumbrances on the Property that will not be cleared at Closing? Easements? Covenants Running with the Land? Liens or other financial servitudes? Leases? 9. If the Property is subject to any Leases, are there any: Security Deposits? Options to Extend Term?

57 Options to Purchase? Rights of First Refusal? Rights of First Offer? Maintenance Obligations? Duty of Landlord to provide utilities? Real estate tax or CAM escrows? Delinquent rent? Pre-Paid rent? Tenant mix/use controls? Tenant exclusives? Tenant parking requirements? Automatic subordination of Lease to future mortgages? Other material Lease terms? 10. New Construction? Availability of construction permits? Soil conditions? Utilities? NPDES (National Pollutant Discharge Elimination System) Permit? Permit required if earth is disturbed on one acre or more of land. If applicable, Storm Water Pollution Prevention Plan (SWPPP) is required. II. THE SELLER: 1. Who is the Seller?

58 Individual? Trust? Partnership? Corporation? Limited Liability Company? Other legally existing entity? 2. If other than natural person, does Seller validly exist and is Seller in good standing? 3. Does the Seller own the Property? 4. Does Seller have authority to convey the Property? Board of Director Approvals? Shareholder or Member approval? Other consents? If foreign individual or entity, are any special requirements applicable? Qualification to do business in jurisdiction of Property? Federal Tax Withholding? US Patriot Act compliance? 5. Who has authority to bind Seller? 6. Are sale proceeds sufficient to pay off all liens? III. THE PURCHASER: 1. Who is the Purchaser? 2. What is the Purchaser/Grantee s exact legal name? 3. If Purchaser/Grantee is an entity, has it been validly created and is it in good standing?

59 Articles or Incorporation Articles of Organization Certificate of Good Standing 4. Is Purchaser/Grantee authorized to own and operate the Property and, if applicable, finance acquisition of the Property? Board of Director Approvals? Shareholder or Member approval? If foreign individual or entity, are any special requirements applicable? Qualification to do business in jurisdiction of the Property? US Patriot Act compliance? Bank Secrecy Act/Anti-Money Laundering compliance? 5. Who is authorized to bind the Purchaser/Grantee? IV. PURCHASER FINANCING: A. BUS INE S S T E RM S OF T HE L OAN: 1. What loan terms have the Borrower and its Lender agreed to? What is the amount of the loan? What is the interest rate? What are the repayment terms? What is the collateral? Commercial real estate only? Real estate and personal property together? First lien? A junior lien? Is it a single advance loan?

60 A multiple advance loan? A construction loan? If it is a multiple advance loan, can the principal be re-borrowed once repaid prior to maturity of the loan; making it, in effect, a revolving line of credit? Are there reserve requirements? Interest reserves? Repair reserves? Real estate tax reserves? Insurance reserves? Environmental remediation reserves? Other reserves? 2. Are there requirements for Borrower to open business operating accounts with the Lender? If so, is the Borrower obligated to maintain minimum compensating balances? 3. Is the Borrower required to pledge business accounts as additional collateral? 4. Are there early repayment fees or yield maintenance requirements (each sometimes referred to as pre-payment penalties )? 5. Are there repayment blackout periods during which Borrower is not permitted to repay the loan? 6. Is a profit participation payment to Lender required upon disposition? 7. Is there a Loan Commitment fee or good faith deposit due upon Borrower s acceptance of the Loan Commitment? 8. Is there a loan funding fee or loan brokerage fee or other loan fee due Lender or a loan broker at closing? 9. What are the Borrower s expense reimbursement obligations to Lender? When are they due? What is the Borrower s obligation to pay Lender s expenses if the loan does not close?

61 B. DOCUM E NT ING T HE COM M E RCIAL RE A L EST A T E L OAN Does Purchaser have all information necessary to comply with the Lender s loan closing requirements? Not all loan documentation requirements may be known at the outset of a transaction, although most commercial real estate loan documentation requirements are fairly typical. Some required information can be obtained only from the Seller. Production of that information to Purchaser for delivery to its lender must be required in the purchase contract. As guidance to what a commercial real estate lender may require, the following sets forth a typical Closing Checklist for a loan secured by commercial real estate. Commercial Real Estate Loan Closing Checklist 1. Promissory Note 2. Personal Guaranties (which may be full, partial, secured, unsecured, payment guaranties, collection guaranties or a variety of other types of guarantees as may be required by Lender) 3. Loan Agreement (often incorporated into the Promissory Note and/or Mortgage in lieu of being a separate document) 4. Mortgage (sometimes expanded to be a Mortgage, Security Agreement and Fixture Filing) 5. Assignment of Rents and Leases. 6. Security Agreement 7. Financing Statement (sometimes referred to as a UCC-1, or Initial Filing ). 8. Evidence of Borrower s Existence In Good Standing; including : (a) Certified copy of organizational documents of borrowing entity (including Articles of Incorporation, if Borrower is a corporation; Articles of Organization and written Operating Agreement, if Borrower is a limited liability company; certified copy of trust agreement with all amendments, if Borrower is a land trust or other trust; etc.) (b) Certificate of Good Standing (if a corporation or LLC) or Certificate of Existence (if a limited partnership) or Certificate of Qualification to Transact Business (if Borrower is an entity doing business in a State other than its State of formation) 9. Evidence of Borrower s Authority to Borrow; including:

62 (a) Borrower s Certificate (b) Certified Resolutions (c) Incumbency Certificate 10. Satisfactory Commitment for Title Insurance (which will typically require, for analysis by the Lender, copies of all documents of record appearing on Schedule B of the title commitment which are to remain after closing), with required commercial title insurance endorsements, often including: (a) ALTA 3.1 Zoning Endorsement modified to include parking [although if the property is a multi-user property, such as a retail shopping center, an ALTA 3.0 Zoning Endorsement may be appropriate] (b) ALTA Comprehensive Endorsement 1 (c) Location Endorsement (street address) (d) Access Endorsement (vehicular access to public streets and ways) (e) Contiguity Endorsement (the insured land comprises a single parcel with no gaps or gores) (f) PIN Endorsement (insuring that the identified real estate tax permanent index numbers are the only applicable PIN numbers affecting the collateral and that they relate solely to the real property comprising the collateral) (g) Usury Endorsement (insuring that the loan does not violate any prohibitions against excessive interest charges) (h) other title insurance endorsements applicable to protect the intended use and value of the col- lateral, as may be determined upon review of the Commitment for Title Insurance and Survey or arising from the existence of special issues pertaining to the transaction or the Borrower. 11. Current ALTA/ACSM Land Title Survey (3 sets), prepared in accordance with the 2011 (or current) Minimum Standard Detail Requirements for ALTA/ACSM Land Title Surveys 12. Current Rent Roll 13. Certified copy of all Leases (4 sets 1 each for Buyer, Buyer s attorney, Title Company and Lender)

63 14. Lessee Estoppel Certificates 15. Lessee Subordination, Non-Disturbance and Attornment Agreements [sometimes referred to simply as SNDAs ] 16. UCC, Judgment, Pending Litigation, Bankruptcy and Tax Lien Search Report 17. Appraisal -complying with Title XI of FIRREA (Financial Institutions Reform, Recovery and Enforcement Act of 1989, as amended) 18. Environmental Site Assessment Report (sometimes referred to as Environmental Phase I and/or Phase 2 Audit Reports) 19. Environmental Indemnity Agreement (signed by Borrower and guarantors) 20. Site Improvements Inspection Report 21. Evidence of Hazard Insurance naming Lender as the Mortgagee/Lender Loss Payee; and Liability Insurance naming Lender as an additional insured (sometimes listed as simply Acord 27 and Acord 25, respectively) 22. Legal Opinion of Borrower s Attorney 23. Credit Underwriting documents, such as signed tax returns, property operating statements, etc. as may be specified by Lender 24. Compliance Agreement (sometimes also called an Errors and Omissions Agreement), whereby the Borrower agrees to correct, after closing, errors or omissions in loan documentation. * * * * * It is useful to become familiar with the Lender s loan documentation requirements as early in the transaction as practical. The requirements will likely be set forth with some detail in the lender s Loan Commitment which is typically much more detailed than most loan commitments issued in residential transactions. Conducting the Due Diligence Investigation in a commercial real estate transaction can be time consuming and expensive in all events. If the loan requirements cannot be satisfied, it is better to make that determination during the contractual due diligence period which typically provides for a so-called free out rather than at a later date when the earnest money may be at risk of forfeiture or when other liability

64 for failure to close may attach. CONCL US ION Conducting an effective Due Diligence Investigation in a commercial or industrial real estate transaction to discover all material facts and conditions affecting the Property and the transaction is of critical importance. Unlike owner occupied residential real estate, when a house can nearly always be occupied as the purchaser s home, commercial and industrial real estate acquired for business use or for investment is impacted by numerous factors that may limit its use and value. The existence of these factors and their impact on a Purchaser s ability to use the Property as intended can only be discovered through diligent and focused investigation and attention to detail. Exercise Due Diligence.

65 Questions Understanding Commercial Lending The Question and Answer Guide PLUS! DICTIONARY OF LENDING TERMS Answers COMPLIMENTS OF

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67 A Partner in Your Success Choosing a lender and developing a relationship is a very important goal. Besides money, lenders can provide something almost as valuable; advice and support. By giving you insights into opportunities within your industry, lenders allow you to take advantage of those opportunities. They will help you choose which of their products and services are best for your situation. Keep in mind that lenders want you to be successful because they want a portfolio of strong, profitable businesses. By using this guidebook to better understand the basics of commercial lending, you ll feel more confident making important decisions about your business. UNDERSTANDING COMMERCIAL LENDING 3

68 Contents What are the first steps in contacting a lender? What are the basic questions a lender will ask me? How can I prepare for a meeting with a lender? What should I expect from my lender? What are the small business owner's responsibilities to a lender? What is a business plan? What should I include in it?... 7 How can I create a business plan that will generate financing? What kind of loan do I need? What are different types of loans used for? Should I check my personal credit? What can I do if I have had personal credit problems? Why does my personal credit history enter into a lender s decision? Does my legal status impact how much money my business can borrow? Should I incorporate my business? Will my suppliers be looked at? Do you have any hints for dealing with suppliers and contractors? What is the Small Business Administration? How does the SBA Guarantee work? What are some common financial problems businesses face? How can I avoid running out of money? What steps should I take if my business develops financial problems? How can my business get refinanced or secure another loan? What is a line of credit? How does a line of credit (LOC) secured with inventory and accounts receivable work? Should I buy or lease my location? How do I decide whether to lease or buy a piece of equipment? Will my lender look at the lease for my location? Should I get my own appraisals? What questions should I ask when buying a business? I would like to buy a business. The present owner says he takes half the income under the table. Can I get this financed? What should be in a purchase-and-sale agreement? I am buying a franchise. What should I do before signing a purchase-and-sale agreement? What collateral do I have to offer? Are there guidelines for using real estate as collateral? What questions will a lender ask when I request a commercial real estate loan? What is the difference between accrual and cash accounting methods? How much of my money has to be invested in the business to qualify for a loan? Do I need to show how the loan money will be used?.. 22 What financial statements does my lender want? How should I handle my projections? Should I provide best case or worst case? What can I do to make sure my cash flow statement is good? Since my accountant handles my financial statements, do I have to understand them? Should I prepare notes to explain items in my financial statements? How long will my loan decision take? What should I do if my loan is rejected? Glossary of important lending terms Text:: John Nelson and Karen Couto. Design: NewGround Publications (Telephone: ) All rights reserved. Photocopying any part of this book is against the law. This book may not be reproduced in any form, including xerography, or by any electronic or mechanical means, including information storage and retrieval systems, without prior permission in writing from the publisher

69 What are the first steps in contacting a lender? What are the basic questions a lender will ask me? First Steps Call the commercial lending department (or a bank s branch) to find out the business loan rules. Ask if the lender is looking for loans of your size and type. Ask for a loan application. Prepare all the requested documents and include a business plan. Make an appointment. Rehearse your presentation. Basic Questions How much do you want? How will the loan be used? See page 22. How long will it take to repay the loan? See page 8. What collateral do you have to offer? See page 20. How much are the owners investing in the business? See page 22. How can I prepare for a meeting with a lender? These guidelines seem basic but they are important Dress properly and be on time. Bring your business plan, a completed loan application, and any other materials you need. The entire presentation should take no longer than 30 minutes. Give an overview or outline at the beginning. Know how you are going to end the presentation. Invite your lender to your business location and show special equipment or services. If you are expanding or remodeling, explain your plans. Answer all negative questions with positive answers. Back up your answers. Find out when you can expect an answer. Request decisions or negotiations made on the telephone be put into writing. Follow up the meeting with a thank you letter and a phone call. UNDERSTANDING COMMERCIAL LENDING 5

70 What should I expect from my lender? When lenders approve your loan requests, they have faith in your business and your ability to make a profit and repay their loans. Value is added when a lender is on your company team. Your lender can also help you determine which of their financial products best meets your business needs. A lender can be a good big picture advisor; he or she will give you insights into your industry s growth opportunities and how you can take advantage of them. Lenders want you to be successful. As your business prospers, so does their business. What are the small business owner s responsibilities to a lender? Keep in mind that your lender is using depositors money to make your loan. And that lending institutions are in business to make money, just like you are. Therefore, treat lenders no differently than you would any other business person. And - most importantly of all - make sure your loan is repaid on time. If you are seeking to establish a financial arrangement with your lender, you will most likely be asked to submit documents including professionally prepared tax returns for three years financial statements list and value of collateral accounts receivable aging (list invoices by how old they are) accounts payable aging (as required by your lender) If there is a delay, provide a date when the lender can expect to receive them. Changes to your loan, such as timing of payment, must be approved It is wise to meet with your lender a few times during this year to share your successes and concerns. Make an appointment, or invite the lender to your business for a first-hand look. UNDERSTANDING COMMERCIAL LENDING 6

71 What is a business plan? What should I include in it? This document summarizes your firm, including your goals and earning objectives. It shows how a loan will be used and repaid. Financial statements (projections for a start-up business) are also included. Business plans are also developed when an existing firm plans a major change in operations. A business plan is a crucial part of a loan request. It also tells your sales personnel, suppliers, and others about your operations and goals. A good business plan helps you allocate resources properly, handle unforeseen complications, and make the right decisions. A business plan includes: An Executive Summary (description of owners) Your management & employees Your marketing plan A competitive analysis Your business location Your operations Your Loan Request (see page 22) Financial Statements (Balance Sheet, Income Statement, Personal Financial, and Cash Flow) Appendix which explains the details (for example, resumes, inventory evaluation, marketing plans) How can I create a business plan that will generate financing? You don t have to be a financial expert to create a good business plan. Use common sense. Write your business plan as though you were the person being asked for the money. The owner(s) should create the business plan. A professional consultant or accountant can help, but the plan should be based on your input. Know what the plan says and how all the numbers are derived. Don t make lenders search through pages to find out how much you are requesting. A cover letter should state how much money is being requested, how much equity is in the business, how the loan will be repaid, and what is offered for collateral (see page 20). Include three things toward the front of the business plan: the legal name of the borrower/business the legal name of all owners the names of your professional team (lawyer, consultant, CPA, insurance agency) UNDERSTANDING COMMERCIAL LENDING 7

72 What kind of loan do I need? It depends on the purpose of the loan and how long are you asking for repayment. Short Term (less than a year): Maybe a Line of Credit (LOC) or a bullet note. Like a credit card, they have a predetermined loan limit. On lines of credit, the money is used when needed and then repaid. LOCs can be used for working capital. Term Loans: Loan payments are made in installments, usually every month. Smaller-term loans are for buying a business, long-term working capital, inventory, expenses, machinery, equipment, furniture, and leasehold improvements. Determine the total amount you need by obtaining quotes and estimates. Longer-term loans are used to buy or refinance commercial real estate, make major improvements or additions to real estate, or purchase major equipment. These loan needs are determined with buy-sell agreements, appraisals and quotes. What are different types of loans used for? Working capital The loan is used for the business expenses (proven by a cash flow analysis showing the amount needed). It is often covered by a revolving line of credit (see page 15). Working capital that will be used over many years may require a longer term loan. Inventory Buying the inventory may require an intermediate - or long-term loan (see page 9). A line of credit (see page 15) can also cover some inventory needs. You will need to prove your inventory needs and expenses by projecting your income/sales, expenses and profits. Equipment, Machinery, Furniture and Fixtures Loans which help buy these items are proven with quotes. These items can often be rented or leased (see page 16) which helps because no down payment is required. Your older assets may have some value; they can often be refinanced or sold (and leased back from the buyer). UNDERSTANDING COMMERCIAL LENDING 8

73 Should I check my personal credit? What can I do if I have had personal credit problems? Review your personal credit report once a year. Your credit information impacts many decisions, from the loan size to the interest rate. A credit report includes credit cards, any mortgages, and your loan payment history. There are three different credit reporting agencies (Equifax, TransUnion, and Experian) who provide your information to lenders so it s a good idea to review all of the information available. Your FICO credit score comes from the Fair Isaac Company who condenses all of your credit information into one number or score. Credit scores typically range from 500 to 800 and low scores affect your ability to obtain a loan or the desired interest rate. The formula used to calculate your FICO score is based on 1) your payment history, 2) the amount you owe, 3) your credit history, 4) the number of new accounts, and 5) the type of accounts (mortgages, credit cards, installment loans). How can you maintain and improve your credit score? Pay your bills on time and manage credit wisely. If you have credit problems, explain them to the lender. Why does my personal credit history enter into a lender s decision? Since you run the business, lenders assume there is a direct relationship between your personal credit history and the business credit history. Credit-conscious lenders prefer applicants who have good credit. The more secure a lender feels about you, the better the chance for your loan approval. Pay attention to the Seven C s: Credit. Must be good. Problems must be explained. Capacity. The business must be able to support its debts and expenses, and be profitable. Capital. Money you or investors are putting in or equity you already have in the business. Collateral. The value of assets that secure the loan. Character. Of the borrower and guarantors. Conditions. The economy, industry trends, or anything that will affect your business. Commitment. Your ability and your willingness to succeed which involves guaranteeing the debt personally even if the company can t pay it. UNDERSTANDING COMMERCIAL LENDING 9

74 Does my legal status impact how much money my business can borrow? Yes. The business must be able to leverage its equity to repay the loan. Lenders consider a business legal description because it often provides alternate sources for repayment of the loan. A sole proprietorship is owned by one person. Raising money depends on collateral and cash flow. If the business gets into financial trouble, the individual does too. There is little liability protection, so you risk losing not just the business but personal assets too. Some risks can be covered with insurance. In a partnership, several people can supply money to repay a loan. Additional money can be raised by adding partners. The personal assets of general partners are still at risk if the loan goes into default. Should I incorporate my business? A corporation is the most common form of business. It is legally treated as a separate entity so the owners liability is limited. It is easy to sell a corporation and to transfer ownership. Additional owners provide more sources to invest in the business. The C corporation is taxed at the corporate rate for profits while the Subchapter S corporation is taxed at the business owners individual tax rate (based on percentage of ownership). There are some restrictions for an S corporation including the maximum number of stockholders. Lenders require personal guarantees (from those who own 20% or more of the business). Lenders will also review the organizational documents to insure their legality. A hybrid between a partnership and a corporation is the limited liability company. It has the limited liability of a corporation but is taxed as a partnership or corporation (depending on the structure). See page 10 for corporations, another legal status. UNDERSTANDING COMMERCIAL LENDING 10

75 Will my suppliers be looked at? Yes. Suppliers are critical to a business, especially a new one. If there is a limited number of suppliers, they may have too much power. If they raise prices, you cannot, in turn, raise yours, so losses occur. It is best to have as many suppliers as possible to be able to select those that suit your needs. Suppliers can be helpful in many ways. They may offer extended terms which is like getting a loan. Suppliers usually are more lenient and have flexible repayment terms. They also offer specialized advice and managerial help with their products and services. A source of quick money for a distressed business may be selling inventory back to the supplier. A list of suppliers should be generated and kept current including the terms of each. Lenders will check the suppliers financial condition, their ability to supply you with products, and check on your payment history. Do you have any hints for dealing with suppliers and contractors? If you are the supplier and your clients are contractors: Look over the terms they offer to their customers to ensure they are not lax. Are standard contracts used? Is their bidding process automated and formal, or is it haphazard? Know their payment history, which will predict how fast will they pay you. If you are the contractor and are subcontracting work to other companies: Are they competent? What are their terms? Are they financially sound? If you choose sub-contractors who do not produce on time, or produce an inferior product or service, you can lose customers or suffer cost overruns and losses. If you are the contractor for a client: Review the plans to determine whether they can afford your services. Their ability to pay for a service contract can be determined by reviewing commitment letters from lenders. Ask for their credit report and check their references. UNDERSTANDING COMMERCIAL LENDING 11

76 What is the Small Business Administration? The Small Business Administration (SBA) is not involved with direct loans unless there is a natural disaster. Its emphasis is on guaranteeing loans to qualified borrowers, up to 75%. The SBA also also sponsors about 900 nationwide Small Business Development Centers (SBDCs), Business Information Centers (BICs) and the Senior Corps of Retired Executives (SCORE). These organizations advise small business owners. Look in the phone books for listings. Call the SBA Answer Desk at ASK-SBA to find out more about their programs and services. SBA information can also be found on their Website How does the SBA Guarantee work? When a lender secures the SBA guarantee, its risk is smaller. Instead of risking 100% of its money, the risk is reduced to 25% since the SBA guarantees up to a maximum of 75% in most programs. Once a lender has approved your loan request, it is submitted to the SBA for its approval and guarantee. Example A $100,000 loan is approved with a 75% SBA guarantee. The maximum loss by the lender (on the loan) is 25% or $25,000. If this business defaults on its loan, 75% of the outstanding amount (what is left on the loan) is paid to the lender by the SBA. If $65,000 is left on the loan: $65,000 Loan balance x 75% SBA guarantee $52,000 is returned to the lender Note: You are still responsible for the loan balance even if the SBA returns money to the lender. Your payment is proportionately applied to the SBA. UNDERSTANDING COMMERCIAL LENDING 12

77 What are some common financial problems businesses face? Little or no record keeping. You must keep meticulous records for yourself, the IRS, and your lender. You should be able to read and understand your business financial statements. Failure to seek outside help. Some excellent resources available are: Small Business Administration (SBA) Service Corps of Retired Executives (SCORE ) Small Business Development Centers (SBDC) Your state s economic development departments Poor financial management. A business needs good financial management, from within the company or an outside advisor. It s your money, so be very self-disciplined. Reluctance to invest in the business. Why should the lender stand behind you if you won t invest your own money? How can I avoid running out of money? Working capital (money for dayto-day activities) is your business lifeline. Don t purchase unimportant items or try to run your business with inadequate working capital. Have money available or have access to it. Consider these points to determine how much money is needed for cash flow: Hard assets list budget. Estimate equipment requirements (furniture, machinery, remodeling), where it will be obtained, when it is needed, and how the costs will be paid. Gross profit. Determine your gross profit by figuring the cost-of-goods sold for each revenue source (each product or service). A list of fixed and variable expenses on a monthly basis. This may require the help of an accountant or business advisor. Interest expenses on the loans you are applying for. The loan s principal amount (due each month) comes out of your profits. A cash flow projection. Actual cash expenses are subtracted from cash (cash sales, collection of receivables, etc.) received every month which shows how much money you need on a monthly basis (see page 24). UNDERSTANDING COMMERCIAL LENDING 13

78 What steps should I take if my business develops financial problems? Immediately consult with your accountant or a financial advisor to determine what s causing the problem. Once the source is found, the solution may involve raising money or securing a loan to correct the problem. Don t wait; try to correct the problem before your business gets into deeper trouble. Develop financial projections that will satisfy your needs. You may have a tendency to limit communication with your lender, believing bad news will damage your relationship. Lenders are astute business people so they understand business cycles. The lender s positive concern is preferable to their negative reaction to withheld information. Keep the lender up to date with your business. How can my business get refinanced or secure another loan? Lenders become cautious when additional money is requested within a year of closing on your last loan. They need to ensure you can repay the existing loan and a new one. If you need to borrow more money, make sure: your source of repayment is established and profitable enough working capital is available or being requested there are no missed loan payments and your credit is problem-free collateral is available to back up the new loan Revise your business plan to prove repayment of the new loan along with: current personal tax returns current business tax returns and financial statements interim business financial statements that are not more than 60 days old contracts (helps to show income), letters of intent to do business a list of accounts receivable (shows how old invoices are) and accounts payable (shows what is owed and how old it is) UNDERSTANDING COMMERCIAL LENDING 14

79 What is a line of credit? A line of credit (LOC) is a shortterm loan (one year) which is set-up before the money is needed. LOCs give you the ability to get money, repay it, and redraw the funds again. LOCs are commonly used for seasonal businesses or to carry accounts receivable and/or inventory. A regular LOC can be secured or unsecured. If secured, the collateral is usually your inventory and accounts receivable. The LOC has to be paid down to $0 each year, for 30 days (to ensure it is for short-term working capital). A Revolving LOC is a longer-term loan and is based on a formula (percentage of advance against accounts receivable, and/or inventory) and doesn t have to be paid down to $0 like the regular LOC. It follows the percentage of accounts receivable and/or inventory. It s usually renewed every year. Don t confuse an LOC with a letter of credit (L/C). A letter of credit guarantees payments to a third party by the lender, on your behalf. If a business owner defaults on a payment, the bank will pay it. This is used often by importing/ exporting businesses. How does a line of credit (LOC) secured with inventory and accounts receivable work? Inventory Lenders will usually finance 50% of the inventory s cost (raw materials and finished goods, not work-in-progress). For example, seasonal businesses that rely on tourists usually finance their inventory. Their busy season begins in the Summer and slows in the Fall. However, these owners buy inventory in February so they must borrow the money. The businesses begin paying back the loan in the Summer until it is totally repaid in the Fall. Accounts Receivable Lenders will usually advance 75% of the qualified accounts receivable (those not past due or considered uncollectible). An example is a business that works with government agencies (who typically pay invoices in days). Most small businesses can t wait 60 days (or more) for invoices to be paid so they borrow money to cover that interim period. UNDERSTANDING COMMERCIAL LENDING 15

80 Should I buy or lease my location? If buying, ask yourself: Can I increase sales and make more profit than I do now? Do I have enough money for the down payment? Can I afford the monthly payments? What type of financing is available? If leasing, ask yourself: What is the cost per square foot and other costs (such as maintenance)? Can I afford the monthly payment on the lease? What are the terms and conditions? Can I transfer or terminate the lease if I need to end it early? Can I lease with the option to buy? If so, can some of my lease payment be applied toward my down payment? How do I decide whether to lease or buy a piece of equipment? Lease rates are usually higher but the monthly payment is shown as an expense and there is an option to purchase the asset at the end of the lease (at a pre-determined percentage of its fair market value). Leases don t require a down payment but most require the first and last monthly payments plus a damage deposit. Operating leases do not appear on your balance sheet. The equipment lease does not appear as an asset nor does the total lease amount appear as a liability. Only one month s payment will appear on the balance sheet. However, the entire lease should be explained to the lender in a footnote. Capital leases have a $1 purchase option, must be shown as an asset and a liability on your balance sheet, and are depreciated. Make your decision after carefully weighing all considerations and costs, then get the equipment operating quickly so it can begin paying for itself. UNDERSTANDING COMMERCIAL LENDING 16

81 Will my lender look at the lease for my location? Yes. Lenders scrutinize leases so make sure you review it first with your attorney and accountant. Your lender will look at: Length of Lease. The lender will want the term of the lease to be the same as the term of the loan, or extendible to the loan maturity date. Monthly payment and escalation clause. This should match the projected cash flow analysis. Try not to tie the escalation clause to sales or profits, but to the consumer price index. Responsibilities. Who pays taxes, insurance, maintenance and other expenses? What is your total monthly payment? How is the base rent established? You are usually quoted a rent per square foot which is the amount paid on a yearly basis for one square foot. Multiply this figure by the number of feet you are leasing. Then divide by 12 to get the monthly payment. Should I get my own appraisals? No. Banks select the appraiser from their approved list and you, the borrower, pay for the appraisal. Banks want commercial real estate and collateral appraisals that are less than six months old. If older, the appraisal must be updated. If you want an indication of value before making an offer, commercial real estate appraisers can give you a summary appraisal for a small percentage of the full commercial appraisal fee. Be sure the real estate has no environmental problems. If this is an issue, the lender may require an environmental study (which you also pay for). If problems are found, an in-depth study may be ordered to determine solutions. How much of the security deposit must you put down? How will you get it back if you have to break the lease or if the lease expires? Is it transferable? If you terminate the lease, what will be the cost? UNDERSTANDING COMMERCIAL LENDING 17

82 What questions should I ask when buying a business? Who started the business? Why is the business for sale? What is the price? How was the price determined? What am I buying? Building, inventory, equipment? What is the amount of goodwill (see page 19)? Will the seller finance this? Are there any patents or trademarks? Who are the competitors? What s the climate of the business industry? What are the sales and trends? Before buying a business, have: audited financial statements (signed by the seller) federal income tax returns (signed by the seller) a purchase-and-sales agreement (see page 19) pictures of the operation/location appraisals on all assets input from customers and suppliers Take the time to: check the business debt evaluate the price and age of inventory check the quality and the age of accounts receivable if you re buying these determine the age, condition and cost of fixing or replacing machinery I would like to buy a business. The present owner says he takes half the income under the table. Can I get this financed? Never believe that half the income is unreported on financial statements. Maybe some is, but it usually means the seller is artificially inflating the income to get the selling price up. The difference between the value of the assets and the fair market value is called goodwill. Since lenders usually don t finance goodwill, you will need to decide how much (over the value of the assets) are you willing to pay. You should ask the seller to take back a loan for some or all of the goodwill. The amount available for a loan depends on how much cash flow (profit after tax and adding back depreciation) is available to service the debt (make payments), how much collateral you have to cover the loan, and your investment in the company. UNDERSTANDING COMMERCIAL LENDING 18

83 What should be in a purchaseand-sale agreement? A purchase-and-sales agreement shows you agree to purchase a business and the current owner agrees to sell it to you. It establishes the price, terms and financing contingencies. It should state: an agreed-upon price a list of what is being bought (machinery, equipment, furniture, fixtures, etc.) actions required by the seller (such as repairs) actions required by the buyer (such as seeking financing of a certain amount) a time limit during which the agreement is binding to both parties The selling price determines how the business could be financed and what programs the lender has available. A good faith deposit is usually required which should be refunded if you can t gain financing. Purchase-and-sale agreements are available in office supply stores, via software programs, and on the Internet. Before you sign the agreement, it s smart to have your attorney prepare and/or review the agreement to ensure you re legally protected. I am buying a franchise. What should I do before signing a purchase-and-sale agreement? Retain the services of an attorney who will review the franchise agreement and the purchaseand-sale agreement with the franchise's area manager. Why is this important? Take, for example, the story of the entrepreneur who needed $60,000 for a franchised ice cream store. He was shown an outdated franchise agreement, and told there would be a new agreement once the financing was approved. The entrepreneur went full speed ahead, writing a business plan and requesting a $60,000 SBA loan. Meanwhile, the franchise company was sold to a large food franchiser whose inspectors decided that the store needed $40,000 in upgrading! The entrepreneur did get back his $5000 deposit, but was responsible for $2600 in appraisals and legal fees. Although he sued the broker and seller to recover these costs, he was still responsible for legal fees. All this could have been avoided if he'd spoken directly to the area manager first and insisted on a current franchise agreement. UNDERSTANDING COMMERCIAL LENDING 19

84 What collateral do I have to offer? Collateral is your assets which may be liquidated by the lender if you don t repay your loan. It is the secondary method of a loan payment; the first source is cash flow (profits). Collateral assets may be business or personal. Business assets may include receivables, inventory, equipment or real estate. Savings, stocks, or real estate may be considered personal assets. You should be aware that lenders discount the value of your collateral, and the discounted amount must be at least equal to the loan request. Each lender s formula for discounting collateral will vary. Take, for example, a $10,000 piece of equipment. Lender A may discount it by 30%, so it counts as $7,000. Lender B may discount it by 50%, counting it as $5000. Be sure you understand your lender s method of discounting. Are there guidelines for using real estate as collateral? Lenders like real estate because it doesn t go anywhere, has a fairly stable value and they can perfect their lien (a mortgage). Lenders may recover all or a large percentage of their loan if the real estate goes to foreclosure. Ask the lender these questions: What type of real estate do you accept as collateral? What percentage of the value are you willing to lend? Must it be a first mortgage? Will you take a second mortgage? Are there any particular characteristics which would disqualify the real estate from financing (wells, septic systems, design, usage)? Are there any environmental concerns? UNDERSTANDING COMMERCIAL LENDING 20

85 What questions will a lender ask when I request a commercial real estate loan? Will the loan be paid from the business occupying the mortgaged property? If so, a review of the company s financial statements will determine its ability to pay a mortgage. If it is going to be leased to other occupants, lenders will review the leases and the credit of the occupants to ensure their ability to pay you. What is the collateral value of the building? Lenders will usually lend up to 70% of the value. The other 30% is paid for in cash, although part of this can often be financed by the seller. To determine the real estate s value, lenders may use the appraiser s figure or the sale price (whichever is lower). Lenders will consider the improvements to be made in the appraised value and phase the loan in as improvements occur. What is the loan-to-value ratio the lender will accept? What are the rates, terms, and conditions? What is the difference between accrual and cash accounting methods? There are two ways to handle your accounting - accrual or cash. The cash method means you record a sale when you collect money, and record an expense when you pay for it. Lenders usually require the accrual method which means: Sales are made and immediately recorded but payments are collected in future months. Your customers pay later, which creates accounts receivable. Purchases made and expenses incurred are received and recorded, but paid for later, creating accounts payable, sometimes called accruals payable. Net income does not always mean cash, as money is tied up in accounts receivable and inventory. Note: In both accounting methods, assets (such as equipment) are depreciated over their lifetime, as required by the Internal Revenue Service. UNDERSTANDING COMMERCIAL LENDING 21

86 How much of my money has to be invested in the business to qualify for a loan? 20-50% of your money must usually be invested but it depends on many factors, such as collateral offered, the purpose of the loan, and your repayment ability. For fixed business assets (machinery, equipment, furniture, and fixtures), business owners typically put 25% down toward the purchase price. Ask your lender about municipal, state or SBA programs that require lesser amounts of your own money to be invested (5%- 10%). Some municipalities and state programs will subordinate loans to the SBA lender (which takes the place of a portion of your down payment). Do I need to show how the loan money will be used? You must show the lender how you will use the money. Give amounts and totals for each category, like this: LOAN REQUEST Amount Requested 140,000 Owner s Investment 30,000 Other Investors 20,000 Total 190,000 USE OF FUNDS Working Capital (via cash flow) 25,000 Equipment and Machinery (via estimates) 110,000 Furniture & Fixtures (via estimates) 25,000 Office Equipment (via estimates) 30,000 Total 190,000 REPAYMENT Term: $140,00 for five years Rate: Prime % Principal and Interest: $ monthly payment (based on 8 1 2% % for a total of %) Repayment source: Cash Flow Collateral offered: New Equipment & Machinery 100,000 Old Furniture & Fixtures 25,000 New Office Equipment & Computer 30,000 Equity in Real Estate 70,000 Total 225,000 UNDERSTANDING COMMERCIAL LENDING 22

87 What financial statements does my lender want? Lenders want to review: Balance Sheet This is a snapshot of your business. A moment frozen in time. The numbers change every day. Companies should show the balance sheet before and after financing. Operating Statement (also called Income Statement, Profit and Loss Statement, Income/Expense Statement) This is your business report card. Expenses are subtracted from income, which gives you the business net profit or loss over a period of time. If you are starting a company, also include: Projected Cash Flow Statement. This is your cash register-- it shows money that comes into the business and money that comes out. See page 24 for details. Personal Financial Statement. Shows personal assets and liabilities for each owner of the business. Existing businesses should include three years worth of statements and interim statements, not more than 60 days old. Start-up companies should use projected statements. How should I handle my projections? Should I provide best case or worst case? Provide a believable projection, which can be proven. Include the following projections: Profit and loss statement monthly for the first year, quarterly for the second year and annually for the third year Cash flow statement monthly for the first year, quarterly for the second year and annually for the third year Balance sheet by month for one year Breakdown of sales by product, by month for one year Cost of goods sold by product, monthly for one year Employee list and salaries per month for one year Breakeven analysis. When a company has neither a profit nor a loss. One dollar more and the company has a profit; one dollar less and the company shows a loss. Lenders want to see when the business becomes profitable. A list of assumptions used to explain and support your projections UNDERSTANDING COMMERCIAL LENDING 23

88 What can I do to make sure my cash flow statement is good? The Cash Flow Statement is your cash register. On a monthly basis, it shows the money that comes into the business and what goes out. This allows you to determine if there s a cash surplus or deficit. Remember that profits do not guarantee a positive cash flow. Cash must be available to pay for bills and day-to-day activities. The cash flow statement will also show an important figure, the cash breakeven point at which cash income equals the cash outflow. The cash flow statement must show your company has cash to pay debts on time. You need to estimate monthly income and expenses based on the direct and variable costs of your product or service. Other Things You Should Know About Cash Flow Statements: The Cash Flow Statement differs from the Operating Statement because it records when cash is received and paid. Show income and expenses on a monthly basis for the first year, quarterly for the second year, and annually for the third year. Begin with revenue/income at the top, followed by expenses and repayment of the loan (not vice versa). Round off numbers. Do not use cents. Show realistic assumptions.if you project sales to increase by 80% every year, the lender may be skeptical. Prove assumptions and attach them to this statement. Cover the downside. Identify any weaknesses and be prepared to finance them. Cash usually jumps up from year one to year two because set-up or start-up costs are high in the first year. Negative or "pull down" balances are common in the first year. Deficiencies must be covered by providing more cash (loans or owners investments), or reducing expenses (which is often not possible). Increased sales normally cause a drain on the working capital. When sales are good, you need to buy more material and labor. Until you start getting paid by your customers, there may be a deficit. Show how you ll overcome this. UNDERSTANDING COMMERCIAL LENDING 24

89 Since my accountant handles my financial statements, do I have to understand them? Input from your advisor (accountant or your business financial manager) is valuable but don t be totally dependent on him or her. Educate yourself. How can you know if you re getting quality service if you don t understand it? You should have a basic understanding of your company s finances. You obviously want to know how your business is profiting. Ask your accountant to sit down with you, and make it your business to learn how to read your financial statements and reports. Should I prepare notes to explain items in my financial statements? Yes. Put these notes in writing because the lender you meet with may need to share this information with others. Refer to specific items in your statements. Keep your comments brief. UNDERSTANDING COMMERCIAL LENDING 25

90 How long will my loan decision take? It varies, but the decision will be delayed if a business plan and its projections leave questions unanswered. Ask your business advisor to review your business plan before you present it to a lender. For example, a lender reviews your loan request and finds missing information. A list of missing items has to be developed and sent to you, usually in writing. The information comes back to the lender, over a period of time which is called the paper snowstorm. The whole process is time-consuming for you and the lender. What should I do if my loan is rejected? Ask the lender these questions: Why was I rejected? Get the reasons in writing. Does this mean I'm turned down permanently? Or can I resubmit the loan request when I correct the problems? Should I go to another lending institution? Should I seek alternative financing? What are the alternatives? Might they include state and municipal loans, venture capital, and banks that offer SBA-guaranteed loans? If a loan officer receives a complete business plan, he or she will usually act on it immediately. If every point is covered, this indicates that the business owner knows what the company is doing and where it s going. Also, commercial loan officers can get overwhelmed with many loan requests. They may need to take care of other responsibilities or make decisions on other loan proposals before your loan request can be reviewed. Do you have any other suggestions? As a small business owner, you need to understand the lender s restraints. Some lenders try to vary their portfolio of small businesses so your business may not be a good addition. Some may have minimum or maximum loans they can make. Other lenders are not allowed to invest in certain industries. UNDERSTANDING COMMERCIAL LENDING 26

91 Glossary UNDERSTANDING COMMERCIAL LENDING 27

92 Ability to Pay Ability to pay loans from the business income. Accounts Payable (A/P) Expenses incurred and purchases made, but not paid for. Accounts Receivable (A/R) Sales made but not collected. Accounts Receivable Financing Short-term financing obtained by pledging receivables to the lender (as collateral for a loan). This enables a business owner to draw against an established line of credit, dictated by a formula (a percentage of accounts receivable). Accrual Basis An accounting method. See page 21. Adequate Notice The length of time required to notify your lender of business action such as cancellation of a lease or prepayment of a loan. Adequate notice is predetermined in writing. Advance Money withdrawn from a pre-approved line of credit. Amortization Schedule A chart or table that breaks a monthly loan payment into two categories; principal and interest. It also reports the balance due. Annual Percentage Rate The cost of credit as a yearly rate. Articles of Incorporation Legal document filed by a prospective corporation s owners in a designated state that explains the purpose of the corporation, its directors, and the distributed shares of stock. When approved by the state, the corporation then becomes a legal entity. Assets What the company owns. Current assets can be converted into cash in one year. Non-Current Assets take one year or more to turn into cash. Asset-based Lending Financing secured by pledging assets (inventory, receivables, or collateral other than real estate). Available Credit The unused portion of a line of credit. Breakeven Point When a company has neither a profit nor a loss. It s considered to be at the breakeven point. One dollar more and the company has a profit; one dollar less and the company shows a loss. Business Credit Loans made to businesses in the form of a term loan or a line of credit. Business Plan An overview put together by new companies and existing companies that are trying to obtain a loan. It includes all aspects of a business and financial statements. See page 7. Call If the loan covenants (rules) are broken or if the maturity is reached, calling a loan means it must be paid in full. Cap A cap limits a loan s interest rate from rising beyond a certain rate. A 10% loan with a 2% cap will only rise to 12%. Capacity Borrower s ability to repay a debt. Capital or Net Worth Assets less liabilities. The amount of money invested in the business plus the retained earnings. A business can have a negative balance. Cash Basis A type of accounting system that recognizes cash when it is received and expenses when they are paid. See page 21. Cash Collateral Bank deposits and similar assets that can be converted to cash quickly. Cash Flow Money available from a business operations to satisfy cash needs. The primary source for monthly payments on a loan. See page 24. Collateral Assets pledged to support a loan. The money received from liquidating the assets is the secondary source of a loan repayment. Collateral Value Value of pledged asset(s) as determined by an appraisal or other methods of valuation. Lenders often discount collateral by a certain percentage. See page 20. UNDERSTANDING COMMERCIAL LENDING 28

93 Commercial Mortgage A loan for a business real estate. Rates and terms are negotiated and the finance charge is usually related to the prime rate. Commitment When a lender agrees to lend a specific amount, with rates, terms, conditions and covenants... in writing. Community Development Bank Locally-operated commercial bank which lends money to the local community. Concentration When a lender s loan portfolio is heavy in a particular industry or type of business. Corporation A form of business registered with the state as a legal entity. See page 10. Cosigner A person who signs and guarantees a loan for someone else. Contingent Liabilities Money you agreed to repay by signing notes, or by being a co-maker or guarantor of loans. Lenders want to know how much money you are liable for if the loan results in legal actions or contested taxes. Cost of Goods Sold Cost to make a product, including materials, labor, and related overhead. Covenant Loan agreement rules for the borrower as dictated by the lender. Credit Lender s agreement to provide funds or apply money to an account owned by the customer. Credit Line Certain amount of money available to a borrower for a predetermined period of time Credit Rating An individual s worthiness for credit as determined by a credit reporting agency. In addition to the information these agencies provide, lenders use tax returns and other financial statements to determine your credit worthiness. Credit Scoring A predetermined process of scoring which is used to approve or reject loan applications. Current Assets Assets that can be converted into cash in one year. Non-Current Assets take one year or more. Current Liabilities Liabilities due within one year. Delinquency Failure to make a loan payment when it s due. Depreciation Except for land, assets wear out. The value goes down and can be deducted from your business as an expense. Present values of assets are shown as original cost less depreciation. Market value, or the price you could sell it for, could differ from this figure. Draw Down Activating a line of credit. For example, when you draw down a line of credit, you activate it. Equity Difference between the total assets of a business and the total liabilities. Factoring Short-term financing from the sale of accounts receivable to a third party. Financial Statement Reports showing the financial condition of a business on a particular date or for a period of time (such as one year). Lenders review the Balance Sheets and Income Statements. See page 23. Fixed Assets Assets like furniture, fixtures, equipment, machinery, and real estate. General Partner When a business is a partnership, every owner who holds a share (a percentage) of the company shares in the profits and losses. General partners are responsible for total liabilities. Gross Profit Gross sales less cost of goods sold. This is your mark-up. Also called gross margin. Gross Sales Revenue or income from sales before returns and allowances. Guaranty (or Guarantee) Agreement by a third party to pay debt if the borrower UNDERSTANDING COMMERCIAL LENDING 29

94 does not. Guarantor A guarantor has the same responsibilities as a co-signer. If the loan goes into default and is not paid by the signer(s) of the loan, the guarantor is responsible. Goodwill The difference between the value of the hard assets and the business selling price. Also called blue sky. Income Statement Financial statement showing a business profit and loss over a period of time (usually a month or a year). See page 23. Interest Money paid (cost of credit) for the use of money. Interest rate The interest expressed as a percentage rate. Inventory Assets held for eventual resale. May be in the form of raw materials, work in progress, or finished goods. Lease Contract giving a business owner the right to use an asset for a specified period of time. The asset owner is called the lessor and the owner using the property is called the lessee. Can be used for a building, equipment or machinery. Leasehold Improvements Improving your leased business location, at your own expense. Letter of Credit (L/C) Payments to a third party by the lender, on the owner s behalf. Lien A claim against a business assets to secure payment of a debt. Limited Partnership Partner that invests in a business and receives a share of the profits (or losses). A partner s liability is limited by the amount of his or her investment. A limited partner does not have any management authority in the operation of the business; the role is purely that of an investor. Limited Liability Company/LLC A form of business that is a hybrid between a corporation and a partnership. See page 10. Liabilities How much the company owes. Current liabilities are those due within one year. Long-term liabilities are due after one year. Line of Credit (LOC) A short-term loan. See page 15. Liquid Asset Asset that can be turned into cash quickly Liquidity A company s ability to pay its expenses. The ability to turn an asset into cash (such as selling a piece of machinery). Loan Agreement The document or contract of the parties that reflects the commitment. Loan Committee Team that evaluates, approves or denies loan applications. Whether a loan officer or a loan committee decides on a loan request may vary by type of loan and lender. Loan Package Documentation Documents for the commercial loan contract including financial statements, a business plan, and a credit report. It includes legal documents that show the debt, notes, mortgages/leases, and loan agreements. Loan Grading System of classification that evaluates risk by assigning a number according to risk. Loan grading is used by lenders, and helps lenders to evaluate loan applications and manage loans. Long-Term Liabilities Expenses, loans, and payables due after one year Marketing Activities used to sell a product or service to the purchaser. Market Value The price an asset, product or service will bring in a current, competitive market. UNDERSTANDING COMMERCIAL LENDING 30

95 Merchant Agreement Written agreement between a credit card processing bank and merchants (who allow clients to use credit cards). The bank turns the credit card sales into deposits for the merchant and charges a processing fee. Net Profit Money left after all expenses have been paid. Used to pay loans and to grow the company. Net Sales Revenue or income from sales after returns and allowances are deducted. Net Worth Assets less liabilities. Non-Current Assets Assets that take one year or more to turn into cash. Notary Public Person authorized by the state to administer oaths and witness documents. A notary s seal and signature authenticates a document. Outstanding Checks Checks that have been sent for payment but are still in the process of being collected by the bank. Overdraft When the amount of a check exceeds the available balance. Overdraft protection allows business owners to write checks for more than the account balance without the checks being returned. This service must be approved by the bank. Owners Investment The money owners have invested in a business. Prime Rate The rate of interest per annum announced by the lender from time to time. Most business owners are charged the printed rate plus a percentage (if the prime rate is 6%, the borrower is charged prime + 2 or 8%). Pro Forma Forecasting future income, expenses, or cash flow with projections. Retained Earnings Net profits accumulated through the company s life and reported in the net worth or equity section of the balance sheet. Note: Can be negative if losses occur. Rate of interest Fixed: Interest rate remains the same for the length of the loan. Variable: Interest rate depends upon an index and increases or decreases (for example, the prime rate or the Treasury Bill index). Ratios Ratios are your business scores that come from your Income Statement and Balance Sheet, not the Cash Flow Statement. Refinancing Replacing existing loans with new loans that have different terms. Often called refi. Rescheduling Extending the length of time required to pay the loan which adjusts the monthly payment. Release Releasing collateral when a loan has been paid off or substituted by other collateral. Secured Loan Loan secured by collateral (which will be liquidated if the borrower defaults on the loan). Small Business Administration See page 12. Subchapter S corporation A legal form of business that is incorporated but taxed at the business owners individual rate of return. See page 11. Tangible Asset Real property such as buildings and machinery. Trademarks, goodwill, or accounts receivable are not considered tangible assets. Term A loan s maturity, stated in months or years. Term Loan Loan, given in one lump sum, is provided at the closing. Repayment is monthly. Trend Analysis A process by which lenders examine business statements and financial ratios to determine if the financial strength is improving or weakening. Working Capital Difference between current assets and current liabilities. An indication of liquidity and the ability to meet current obligations. UNDERSTANDING COMMERCIAL LENDING 31