← Click to open or close all details at once,
or click the ▸ after each bullet to open individually
Sources
Conventional Banks
Large national and regional commercial banks – think Wells Fargo, JPMorgan Chase, Bank of America, US Bank – are still the most common first stop for business and real estate financing. They offer competitive long-term fixed rates, deep product menus, and established underwriting processes, though they require strong credit, documented income, and considerable patience (60-120 day close timelines are normal).
Key considerations:
Typically require 700+ personal credit score and 2+ years business history
Full documentation: tax returns, financials, appraisal, environmental reports
Best for stabilized, income-producing properties with clean financials
Relationship matters – a known banker can accelerate decisions significantly
Community Banks
Community banks (generally under $10B in assets) serve local markets and are often far more flexible and relationship-driven than their national counterparts. They typically hold loans in their own portfolio rather than selling them, which gives their loan officers real authority to make judgment calls on borrower character and local market knowledge.
Advantages over large banks:
Faster decisions – sometimes within 2-4 weeks
Willing to consider local context and borrower relationships, not just spreadsheets
May lend on property types or in markets that nationals avoid
Lower loan caps – usually under $5M-$10M per loan
Credit Unions
Credit unions are member-owned, not-for-profit cooperatives that typically offer lower interest rates and fees than comparable bank products. While historically focused on consumer lending, many larger credit unions now offer competitive commercial real estate and small business loans, particularly for owner-occupied properties.
What to know:
Must qualify for membership (employer, geography, association)
Commercial loan limits vary widely – check each CU's business lending charter
Rates often 0.25%-0.75% below comparable bank products
Less experienced at complex commercial deals; best for straightforward owner-occupied CRE
Non-Bank Lenders
Non-bank lenders – including mortgage REITs, debt funds, and specialty finance companies – have become a major force in commercial real estate lending, especially since banks tightened standards after 2008. They operate outside traditional banking regulation, giving them more flexibility on deal structure, property type, and borrower profile.
Common non-bank lender types:
Mortgage REITs (e.g., Arbor, Ready Capital) – originate and hold or securitize CRE loans
Debt funds backed by institutional capital – often faster and more creative than banks
Online/fintech lenders – fast, automated underwriting, usually for smaller loans under $5M
Higher rates than banks (typically 1%-3% spread), but faster closes and looser covenants
Alternative Lenders
Alternative lenders is a broad term covering any financing source that falls outside traditional banking – including online platforms (OnDeck, Kabbage, Fundbox), merchant cash advance providers, revenue-based lenders, and specialty asset lenders. They fill gaps for borrowers who need speed, have imperfect credit, or are in situations conventional lenders won't touch.
Trade-offs are real:
Approval and funding can happen in 24-72 hours – a major advantage for time-sensitive deals
Rates are significantly higher – effective APRs of 20%-80% are not uncommon for short-term products
Best used as a short bridge, not a long-term financing strategy
Repayment terms can be daily or weekly draws from bank account – watch cash flow impact
Bridge Lenders
Bridge loans are short-term loans (typically 6-36 months) designed to "bridge" the gap between immediate capital needs and longer-term permanent financing. They are commonly used during property acquisition, repositioning, renovation, or lease-up phases – situations where the property's cash flow doesn't yet support a permanent loan.
Typical structure:
Interest rates: 7%-12% depending on LTV, sponsor experience, and property condition
1-3 origination points at close
Usually interest-only payments during the term
Exit strategy is critical – lenders want a clear path to refinance or sale
Government-sponsored and agency lenders provide some of the most competitive long-term financing available for qualifying projects. Each program has distinct eligibility rules, but collectively they cover small business, multifamily, healthcare, affordable housing, and energy-efficiency projects at below-market rates and high leverage.
Key programs at a glance:
SBA 7(a) – general business loans up to $5M; owner-occupied CRE, equipment, working capital; up to 90% LTV
SBA 504 (CDC) – fixed-asset and CRE loans; below-market 20-year fixed rate on 40% of project; 10% down payment
HUD/FHA 223(f) – multifamily acquisition/refinance; 35-year fully amortizing; up to 85% LTV; low fixed rates
HUD/FHA 221(d)(4) – new construction or substantial rehab multifamily; 40-year term; very competitive but complex
Fannie Mae / Freddie Mac (FNMA/FHLMC) – multifamily permanent loans; very competitive rates; DUS lender network
PACE – Property Assessed Clean Energy; funds energy-efficiency and renewable upgrades; repaid through property tax assessment; no personal guarantee
—————— Include Equity ——————
Pre-Seed
Pre-seed is the earliest formal stage of startup funding, typically ranging from $25K to $500K, used to validate a concept before a full product exists. Capital usually comes from the founders themselves, friends and family, angel syndicates, or early-stage micro-funds. The focus is on building a prototype, conducting initial market research, and assembling a founding team.
What investors expect at this stage:
A compelling founder story and credible team – track record matters more than revenue
A clear problem statement and early evidence of market demand
Typically structured as a SAFE note or convertible note rather than priced equity round
Valuation caps of $1M-$5M are common at this stage
Angel Investors
Angel investors are high-net-worth individuals who invest personal capital in early-stage companies, typically at the seed or Series A stage ($50K-$2M per deal). Unlike VCs, angels invest their own money and often bring strategic value through industry connections, mentorship, and domain expertise. Many operate through organized angel groups or syndicates that pool capital and share due diligence.
Working effectively with angels:
Angels prioritize founder character and passion as much as financials
Warm introductions through mutual connections are far more effective than cold outreach
Groups like Rockies Venture Club (Denver), Keiretsu Forum, and AngelList syndicates offer structured access
Expect 20%-40% equity discussion at early stages – negotiate based on traction and alternatives
Venture Capital
Venture capital firms manage pooled institutional capital from endowments, pension funds, family offices, and high-net-worth individuals, deploying it into high-growth startups in exchange for equity. VC is appropriate only when a business has a realistic path to $100M+ in revenue and a large addressable market – they need portfolio returns of 10x or more to make the math work across a fund.
Understanding the VC model:
Series A typically $2M-$15M; Series B $15M-$50M; Series C and beyond for scaling
VCs take board seats and have significant control provisions
Most VCs reject 98%+ of applications – warm introductions are essentially required
Focus sectors vary by fund – find VCs whose thesis matches your business model
CRE-tech, proptech, and climate-tech have dedicated VC funds worth targeting specifically
Friends and Family
Friends and family (F&F) rounds are often the first outside capital a founder raises, and they can be critically important for getting to a demonstrable proof of concept. While the relationships make it feel informal, F&F funding carries real legal and emotional risk that must be managed carefully from the start.
Best practices to protect everyone involved:
Always document in writing – use a simple promissory note or SAFE, even for small amounts
Be explicit and honest about the risk of total loss – don't let optimism become misrepresentation
Never take money someone cannot afford to lose
Consider structuring as a loan with modest interest rather than equity to preserve relationships
Set clear milestones and provide regular updates – communication prevents conflict
Crowd Funding
Crowdfunding platforms allow businesses to raise capital from large numbers of smaller contributors, either as donations, pre-purchases, debt, or equity. The appropriate platform depends entirely on what you're offering in return. Real estate crowdfunding specifically has become a significant capital source for CRE deals since the JOBS Act opened equity crowdfunding to non-accredited investors.
Major platform categories:
Reward/donation – Kickstarter, Indiegogo; no repayment; best for consumer products and creative projects
Real estate equity – Fundrise, CrowdStreet, RealtyMogul; investors receive equity in CRE deals; SEC-regulated
Regulation CF – raise up to $5M/year from non-accredited investors; requires SEC filing and platform
Corporate Investors / Strategic Partners
Large corporations increasingly invest in startups or growth companies that serve their strategic interests – either through direct corporate venture capital (CVC) arms or through commercial partnerships with capital components. Unlike financial investors, corporate investors are motivated by strategic fit as much as financial return, which can be a major advantage or a complication depending on alignment.
What to understand about corporate capital:
CVCs include Google Ventures, Intel Capital, Salesforce Ventures, and hundreds more
Decision timelines tend to be longer and more bureaucratic than independent VCs
Exclusivity provisions and right-of-first-refusal clauses can limit future options – read carefully
A corporate partnership (customer + investor) validates the business and accelerates sales simultaneously
Retirement Accounts (SDIRA / ROBS)
Self-Directed IRAs (SDIRAs) allow retirement account holders to invest in alternative assets including real estate, private equity, and business ventures – rather than being limited to stocks and mutual funds. The Rollover for Business Startups (ROBS) structure additionally allows entrepreneurs to use 401(k) funds to capitalize a new business without early withdrawal penalties or taxes.
Critical structure and compliance points:
SDIRA must be held at a custodian that allows alternative investments (Equity Trust, Millennium Trust, etc.)
Prohibited transactions include self-dealing – you cannot personally benefit from assets in your own SDIRA
ROBS requires establishing a C-Corp and a retirement plan within it – requires specialized legal setup ($5K-$10K)
IRS scrutiny is real – work with a specialist who does this regularly, not a generalist accountant
Local Family Offices
Family offices manage the wealth of ultra-high-net-worth families (typically $100M+ in assets) and are one of the most flexible and often overlooked sources of capital. They invest across asset classes and are not subject to the rigid mandates of institutional funds – a single family office might do a $2M real estate bridge loan and a $10M equity investment in the same quarter.
How to access family office capital:
They rarely advertise – access comes through wealth managers, estate attorneys, and trusted introductions
Local family offices prefer local deals they can monitor and understand
Decision-making is fast when the principal is interested – sometimes a single meeting leads to a term sheet
Relationship and trust are paramount; long-term alignment matters more than deal metrics alone
Insurance Companies
Life insurance companies are major long-term CRE lenders, particularly for large, stabilized properties – typically $20M and above. They have long-duration liabilities (life insurance policies and annuities) and therefore seek long-duration fixed-rate assets to match, making 10-25 year fixed CRE loans a natural fit. Rates are often among the lowest available for qualifying deals.
What insurance lenders look for:
Stabilized properties with strong occupancy and institutional-quality tenants
Strong sponsorship – experienced operators with track records in the property type
Typically require deals of $15M-$20M minimum; some go lower through correspondent lenders
Process can be slow (90-120 days) but terms and rates are often excellent compensation
Pension Funds
Public and private pension funds allocate significant portions of their portfolios to real estate – typically 5%-15% of total assets – and invest both directly in properties and indirectly through real estate funds, REITs, and debt instruments. They favor large, institutional-quality assets with long-term stable cash flows that match their long-horizon obligations.
Access points for pension capital:
Direct investment in properties typically requires $50M+ deal size
Indirect access available by raising a fund that pension funds can invest in as LPs
State pension funds (CalPERS, TIAA, etc.) publish their investment policies and manager search processes
Mezzanine and preferred equity from pension arms (like MetLife Investment Management) available at lower minimums
Incubators and Accelerators
Incubators and accelerators provide early-stage companies with capital, workspace, mentorship, and connections in exchange for a small equity stake (typically 5%-10%) or, in the case of many non-profit incubators, no equity at all. Programs like Y Combinator, Techstars, and dozens of industry-specific and regionally-focused programs can be transformational for the right company.
Selecting the right program:
Y Combinator and Techstars offer prestige and strong alumni networks but are highly competitive
Industry-specific programs (proptech, agtech, fintech) provide relevant mentors and investor access
University-affiliated incubators often provide free or low-cost space and SBIR/STTR grant assistance
Evaluate the quality of mentors and portfolio companies, not just the capital offered
Community Collaboratives
Community collaboratives – including CDFIs (Community Development Financial Institutions), community development corporations (CDCs), and local economic development funds – provide capital and technical assistance to projects that generate community benefit, often in underserved markets. They fill financing gaps that conventional lenders won't touch and frequently layer with government programs and grants.
Examples and access:
CDFIs are certified by the U.S. Treasury and include Opportunity Finance Network members nationwide
Rates and terms are often below-market, with more flexible underwriting for community-impact projects
Often require a community benefit component – jobs created, affordable units, local ownership
Excellent layering partner alongside SBA, HUD, and state economic development programs
Private Money
Private money refers to capital from individual private investors – not institutional – who lend their own personal funds, often secured by real estate. It is distinct from hard money (which comes from organized lending operations) in that private money relationships are typically direct, personal, and negotiated individually without a formal company intermediary.
Building a private money network:
Sources include real estate investor networks, local REIA clubs, LinkedIn, and referrals from attorneys and CPAs
Terms are negotiable – rates of 8%-12% are typical; terms of 1-3 years common
Collateral is key – most private lenders lend 60%-70% of verified property value
A track record of successful deals and on-time repayments is your most valuable marketing asset
High-Net-Worth Individuals
High-net-worth individuals (HNWIs, generally $1M+ in investable assets) represent a vast pool of private capital that is actively seeking yield above what public markets provide. They may participate as equity investors, private lenders, or limited partners in real estate syndications – and are often more accessible than institutional sources.
Reaching HNWI investors effectively:
Registered Investment Advisors (RIAs) and wealth managers are gatekeepers – cultivate those relationships
SEC Regulation D allows private offerings to accredited investors without full registration
Accredited investor definition: $200K+ individual income ($300K joint) or $1M+ net worth excluding primary home
Build credibility through consistent content, case studies, and transparent reporting on past deals
Private Individuals
Beyond accredited investors, non-accredited private individuals can also participate in certain regulated offerings. The JOBS Act created pathways – including Regulation Crowdfunding (Reg CF) and Regulation A+ – that allow businesses to raise capital from the general public with lower barriers than traditional securities offerings.
Regulatory framework to know:
Reg CF: raise up to $5M/year from non-accredited investors via SEC-registered crowdfunding platform
Reg A+: raise up to $75M/year from general public; requires SEC qualification; heavier compliance
Non-accredited investors have investment limits based on income/net worth
Always work with a securities attorney – violations carry serious civil and criminal penalties
Specialties
Cash-Flow Lenders
Cash-flow lenders underwrite primarily based on the business's earnings before interest, taxes, depreciation, and amortization (EBITDA) rather than hard asset collateral. This makes them particularly valuable for service businesses, professional practices, and tech companies that generate strong income but own few tangible assets. The Debt Service Coverage Ratio (DSCR) – net operating income divided by debt payments – is the key metric; most require 1.25x or higher.
Common cash-flow lending products:
SBA 7(a) loans for businesses with proven revenue streams
Unitranche loans combining senior and mezzanine debt in a single instrument
Revenue-based financing where repayment is a fixed % of monthly revenue
Requires 2+ years of tax returns demonstrating consistent profitability
Equipment Lenders
Equipment financing allows businesses to acquire machinery, technology, vehicles, and other hard assets using the equipment itself as collateral. Because the loan is secured by a tangible depreciating asset, qualification is often easier than unsecured business financing – even borrowers with limited business history can qualify if the equipment has strong resale value.
Structure and terms:
Loan or lease – loans build ownership equity; leases preserve flexibility and may offer tax advantages
Typical terms: 3-7 years, matching useful life of equipment
80%-100% financing available, including soft costs like installation and training in some cases
Commercial vehicle financing covers everything from a single delivery van to a fleet of semis or construction equipment. Rates are generally competitive because vehicles have strong resale markets that protect lenders' collateral position. Fleet financing programs from manufacturers (Ford Credit Commercial, Ram Commercial, etc.) often offer the best rates for larger purchases.
Options and considerations:
Commercial auto loans, fleet lines of credit, or TRAC leases (Terminal Rental Adjustment Clause) for larger fleets
Personal credit of the business owner often still impacts approval for smaller businesses
Document expected mileage, maintenance plans, and depreciation schedule for lender review
Used commercial vehicles qualify but expect higher rates and shorter terms
Single-Family Lenders (including Fix-and-Flip)
Single-family investment lenders specialize in 1-4 unit residential properties held for investment – including fix-and-flip, BRRRR (Buy, Rehab, Rent, Refinance, Repeat), and rental portfolio strategies. This is a distinct market from owner-occupied residential mortgages and operates under different rules, rates, and lenders.
Key lenders and programs:
Fix-and-flip lenders: Kiavi (formerly LendingHome), Lima One Capital, RCN Capital – fast closes, asset-based
DSCR rental loans: qualify on property income rather than personal income – great for self-employed investors
Portfolio lenders: finance multiple properties under one loan – simplifies management, may require 5+ properties
Rates range from 6.5%-12% depending on experience, LTV, and product type
Commercial-Only Lenders
Commercial-only lenders focus exclusively on income-producing commercial properties – office, retail, industrial, multifamily (5+ units), hospitality, self-storage, and mixed-use. Unlike banks that handle both consumer and commercial lending, these specialists have deeper market knowledge, more flexible structures, and underwriters who understand complex commercial deals.
What they bring to the table:
Expertise in property-type-specific underwriting (cap rates, NOI analysis, rent rolls, lease structures)
Correspondent relationships with life companies, CMBS conduits, and agency programs
Ability to structure deals with interest reserves, holdbacks, and step-down prepayment schedules
Better suited for complex or transitional assets than generalist bank lenders
Hard-Money Lenders
Hard money lenders are organized private lending operations that make short-term, asset-based loans secured primarily by real estate value rather than borrower creditworthiness. "Hard" refers to the hard asset (real estate) used as collateral, not the difficulty of obtaining the loan – though terms are certainly more expensive than conventional financing.
When hard money is the right tool:
Property needs significant rehab and won't qualify for conventional appraisal
Borrower has credit issues but has equity and a clear exit plan
Speed is critical – competitive acquisition where 30-day close wins the deal
Conventional (50%-90% Loan to Value, LTV – or Cost, LTC)
Conventional loans are standard commercial mortgages from banks and non-bank lenders, not backed by a government guarantee. They cover the widest range of property types and borrower situations, with rates and leverage varying by lender risk appetite, property quality, and borrower strength. LTV (based on appraised value) and LTC (based on total project cost) are the primary sizing metrics.
Typical parameters:
5-, 7-, or 10-year fixed rate with 20-30 year amortization; balloon payment at maturity
DSCR minimum 1.20x-1.25x; LTV 65%-80% for most property types
Recourse vs. non-recourse – larger loans ($5M+) more commonly non-recourse
Prepayment: often step-down or yield maintenance – model the exit cost before signing
Small Business Administration (SBA)
The SBA guarantees a portion of loans made by approved lenders, reducing lender risk and enabling terms that would otherwise be unavailable to small businesses. Two primary programs dominate: the 7(a) for general business financing and the 504 for fixed assets and owner-occupied commercial real estate. Both require the business to be for-profit, U.S.-based, and meet SBA's size standards.
7(a) vs. 504 at a glance:
7(a): Up to $5M; 25-year real estate term; rate tied to prime; use for RE, equipment, working capital, acquisition
504: No set maximum project size; 40% of cost at below-market 20-year fixed rate via CDC; 50% from bank; 10% down
Both require owner-occupancy of at least 51% for existing buildings (60% for new construction)
Personal guarantee required from all 20%+ owners; no tax liens or prior government loan defaults
HUD / FHA (Multifamily, Healthcare, Elderly, Special Needs)
HUD-insured loans through the FHA are the gold standard for multifamily permanent and construction financing – offering the longest terms, highest leverage, and lowest rates available in the market for qualifying properties. The tradeoff is complexity and time: HUD deals require specialized lenders (MAP-approved), environmental reviews, and detailed compliance documentation.
Primary multifamily programs:
223(f): Acquisition or refinance of existing multifamily (5+ units); 35-year term; up to 85% LTV; fixed rate
221(d)(4): New construction or substantial rehabilitation; 40-year term; up to 85% LTV; non-recourse
232: Assisted living, skilled nursing, memory care facilities; up to 80% LTV
Timeline: 6-12 months from application to close – plan accordingly; not for time-sensitive situations
Second Mortgage / Junior Lien
A second mortgage is a loan secured by a lien on the property in subordinate position to the first mortgage. It provides additional leverage – covering part of the down payment or equity gap – but at a higher interest rate that reflects the lender's junior position in foreclosure priority. Many first-lien commercial lenders prohibit or restrict seconds without their consent.
When and how seconds are used:
Bridge the gap between the first lender's maximum LTV and the required down payment
Seller carryback as a second is often more achievable than a third-party second
Mezzanine debt technically not a second mortgage (secured by equity pledge, not property lien) but functions similarly
Rates typically 2%-5% above first mortgage rate; terms of 2-5 years common
Factoring Invoices / AR & Payroll Financing (NEW)
Invoice factoring converts outstanding accounts receivable into immediate cash by selling invoices to a factoring company at a discount (typically 1%-5% fee). Because it is technically a purchase of an asset (the receivable) rather than a loan, it does not appear as debt on the balance sheet and does not require traditional loan underwriting. Payroll financing is a related product that funds payroll specifically when cash timing mismatches occur.
How factoring works in practice:
Factor advances 80%-97% of invoice face value within 24-48 hours
When customer pays the invoice, factor remits the remaining balance minus fees
Creditworthiness of your customers matters more than yours – factoring can help businesses with imperfect credit
Best for B2B businesses with reliable commercial customers and 30-90 day payment cycles
Spot factoring available for individual invoices; full-portfolio factoring for ongoing facility
Lines of Credit
A line of credit (LOC) is a revolving credit facility that allows a borrower to draw, repay, and re-draw funds up to a set limit – paying interest only on the outstanding balance. Business LOCs are among the most flexible financing tools available and are essential for managing cash flow gaps, covering seasonal working capital needs, and taking advantage of time-sensitive opportunities.
Revolving seconds on home or assets; higher interest rate than fixed
Under $30K: community banks and credit unions; unsecured, no/low documentation; higher interest rate after promo period
Under $300K: services available to float one application to several lenders; some focus on those using the same higher credit bureau reducing inquiry hits; about 10% fee from proceeds; higher interest rate after promo period
Note: 0%-interest promotional credit cards are available – but may accrue interest – and normally charge double-digit interest on balance after 0% term
Participation Note
A participation note is a hybrid debt instrument that pays like a loan but includes a defined option for the lender to purchase equity at a discounted price after the loan is fully repaid. It allows a borrower to access capital without immediately diluting ownership, while giving the lender upside participation if the business succeeds. The equity purchase price and window are negotiated at origination.
Use cases and structure:
Common in early-stage or growth companies that don't yet qualify for conventional debt
The note carries a below-market interest rate in exchange for the equity kicker
Clearly define: exercise price, exercise window, anti-dilution provisions, and what triggers the right
Useful when both parties want a "try before you buy" relationship before full equity investment
Syndicated Loan (combines sources to reduce risk, or for very large loans)
A syndicated loan is a single credit facility provided by a group of lenders – the "syndicate" – who each fund a portion of the total loan under a single loan agreement with uniform terms. Syndication allows individual lenders to participate in loans larger than they could or would fund alone, while spreading risk. One lead arranger (typically a large bank) structures the deal and manages the syndicate.
When syndication applies:
Typical for loans of $50M+ where a single bank's concentration limits or risk appetite is exceeded
All lenders sign the same agreement – the borrower deals with a single agent bank for administration
Syndication is also used in construction lending, bridge facilities, and complex multi-tranche structures
Term loan A (amortizing, held by banks) and Term loan B (institutional, less amortization) are common syndicated tranches
Hard Money (asset-based; short term; higher rate)
Hard money loans are short-term loans secured by real property, underwritten primarily on the asset value (typically after-repair value) rather than the borrower's creditworthiness or income. They are the tool of choice for real estate investors who need speed, face credit challenges, or are buying distressed properties that won't appraise for conventional financing.
Working with hard money lenders effectively:
Present a clear exit strategy (sale or refinance) – lenders want to know how they get paid back
Bring your experience summary and a track record of completed deals if you have one
Get multiple quotes – rates and fees vary significantly between lenders even in the same market
Factor all costs: interest (often monthly), origination, extension fees, and prepayment into your deal analysis
Syndication (Equity – LP, GP, KP roles)
Real estate syndication pools capital from multiple investors to acquire or develop properties that no single investor could tackle alone. The General Partner (GP/Sponsor) finds, structures, and operates the deal; Limited Partners (LPs) provide the majority of capital and receive passive income and appreciation in return. A Key Principal (KP) may be brought in to satisfy lender requirements for experience or net worth.
Typical syndication economics:
LP investors typically contribute 70%-90% of equity; GPs contribute 10%-30% and earn promoted interest
Preferred return to LPs: 6%-8% annually before GP participates in profits
Profit split after preferred return: 70/30 or 80/20 LP/GP is common
Offerings to more than 35 non-accredited investors require full SEC registration – use an experienced securities attorney
Mezzanine Financing
Mezzanine debt sits between senior debt and equity in the capital stack – subordinate to the first mortgage but senior to the equity. Rather than being secured by a lien on the property itself (which the senior lender won't allow in junior position), mezzanine is secured by a pledge of the equity interests in the property-owning entity. In a default, the mezzanine lender can foreclose on the equity and take over the entity.
Where mezzanine fits in a capital stack:
Senior debt: 60%-70% of capital stack at 6%-8%
Mezzanine: 10%-20% at 10%-15%; interest may be PIK (paid-in-kind, accruing) rather than current pay
Equity: 20%-30% – lowest priority but highest return potential
Total blended cost of capital is higher than senior alone but allows sponsor to deploy less equity
Convertible Note (equity play)
A convertible note is a debt instrument that automatically converts into equity at a future financing round, typically at a discount to the price paid by new investors. It allows early investors and companies to defer the difficult question of valuation until more data exists, while still getting capital deployed immediately. It is the most common instrument used in seed-stage startup financing.
Key terms to negotiate:
Discount rate: 15%-25% discount to Series A price – the early investor's reward for risk
Valuation cap: Maximum valuation at which the note converts – protects early investors if valuation soars
Interest rate: 5%-8% simple interest, accruing until conversion
Maturity date: Typically 18-24 months – if no conversion event, note becomes due or converts automatically
CrowdFunding (debt, equity, donation, or pre-purchase)
Crowdfunding raises capital from large numbers of contributors through online platforms, with each contributor typically providing a small amount. The legal and tax treatment differs substantially based on what the contributor receives in return – a donation, a product, debt repayment, or equity ownership. Real estate crowdfunding has become a specific, rapidly growing sub-sector with platforms dedicated exclusively to CRE deals.
Debt or equity – equity portals require SEC registration
Suppliers (who profit from your existence or growth)
Suppliers who depend on your business for revenue have a direct financial incentive to help you succeed and grow. Extended payment terms, consignment arrangements, and vendor financing are all forms of supplier-provided capital that don't show up on a bank application – yet they can free up significant working capital for other uses.
How to leverage supplier relationships:
Negotiate net-60 or net-90 payment terms in exchange for volume commitments or early-pay discounts
Ask about floor plan financing (pay when sold, not when delivered) for inventory-heavy businesses
Some major suppliers have formal vendor financing programs – particularly equipment, tech, and construction material suppliers
Strong supplier relationships can also provide trade references that support bank loan applications
Customers (upfront cash arrangements)
Your customers can be a direct source of non-dilutive capital through structures that exchange future value for upfront payment. This is especially effective for businesses with recurring revenue, subscription models, or large contract opportunities. Customer-funded growth is one of the most underutilized financing strategies for early-stage businesses.
Give a discount for a year for upfront cash – even 5%-10% off for full-year prepayment can fund operations
Commit to a subscription model for a year – predictable revenue that banks and investors find attractive
Government contract with big payment up front – procurement offices often allow milestone payments at project start
Enterprise pilots funded by the customer as a paid proof-of-concept – validates the product and generates revenue simultaneously
Grants (Government, Veteran, Non-Profit)
Grants are non-repayable funds awarded by government agencies, foundations, and non-profit organizations to support specific activities – research, community development, workforce training, energy efficiency, and more. While competitive and often restricted in use, grants are pure capital that requires no repayment and no equity dilution. The application process is time-intensive but the cost of capital is zero.
Major grant sources for CRE and business:
SBIR/STTR: Federal grants for technology development through agencies like NSF, DOE, DOD – up to $2M in non-dilutive funding
EDA: Economic Development Administration grants for regional economic development projects
USDA Rural Development: Business grants and loans for rural area businesses and CRE
State and local programs: Enterprise zones, brownfield redevelopment, historic preservation tax credits
Veteran-specific: SBA boots-to-business programs, state veteran business development grants
Sponsorships
Sponsorships are a creative financing mechanism where a company provides capital in exchange for marketing exposure rather than financial return. For CRE projects with high visibility – mixed-use developments, event venues, sports facilities, or branded commercial buildings – naming rights and sponsorship deals can offset significant development costs.
Structuring effective sponsorships:
Quantify the exposure: audience size, impressions, signage visibility, event attendance, media coverage
Corporate sponsor budgets typically come from marketing, not investment budgets – approach the CMO, not the CFO
Multi-year commitments provide more reliable capital than one-off deals
Logos on buildings, vehicles, websites, signage, event programs, and social media all have assigned value
Government Programs aligned with leadership agendas
Federal, state, and local governments actively fund projects that advance policy priorities – affordable housing, energy transition, job creation, broadband infrastructure, and economic revitalization. Programs change with administrations, but the underlying need for community investment creates durable funding streams at every government level.
Key current program areas:
Opportunity Zones: Federal capital gains tax deferral and reduction for investments in designated census tracts
Low Income Housing Tax Credit (LIHTC): Largest affordable housing financing tool in the U.S. – equity from tax credit investors
New Markets Tax Credit (NMTC): Below-market financing for projects in low-income communities
IRA clean energy credits: Investment tax credits for solar, energy storage, EV charging in commercial properties
Find local programs at your city's economic development office and state CDFI coalition
Owner Carry / Seller Financing
Seller financing occurs when the property or business seller acts as the lender – accepting installment payments rather than a lump sum at closing. It can bridge the gap between the first lender's maximum LTV and the purchase price, reduce the buyer's required down payment, and provide the seller with a higher effective sales price through interest income. The seller's note can later be sold to a note investor for a lump sum.
Seller finances the buyer directly – often at a better rate than third-party bridge lending
1-2 years common – long enough to stabilize the asset or business and refinance conventionally
Longer terms if mutually beneficial – particularly useful in complex transitions or estate situations
The note can be sold for the lump sum the seller may need – note buyers typically pay 70%-85% of face value
Loan Assumptions
Assuming an existing loan means the buyer takes over the seller's current mortgage, including its original interest rate, remaining term, and balance. In a rising-rate environment, assuming a low-rate loan originated a few years earlier can create substantial value – a 3.5% assumable loan on a property currently priced with 7% market rates is a significant competitive advantage.
What to know about assumption eligibility:
Most conventional bank and CMBS loans are not assumable – check the due-on-sale clause
FHA, VA, and many HUD multifamily loans are assumable – this is a major selling point
FNMA/FHLMC multifamily loans are generally assumable with lender approval and qualification
Assumption fee typically 1% of the loan balance; new borrower must meet current underwriting standards
Public Offerings (Initial and Subsequent)
An Initial Public Offering (IPO) or subsequent secondary offering allows a company to raise capital from the public markets by selling shares on a stock exchange. While typically associated with large companies, smaller companies can access public capital through Regulation A+ (up to $75M), direct listings, or SPAC mergers, which have significantly lower thresholds than a traditional IPO.
The path to public capital:
Traditional IPO: investment bank underwritten; typically requires $100M+ in revenue or clear path to it; 12-18 month process
SPAC merger: merge with a pre-existing public shell company; faster but scrutiny has increased significantly post-2021
Reg A+ ("mini IPO"): raise up to $75M from public investors with SEC qualification; viable for growth companies $5M-$50M stage
Real estate companies can also access public capital via REIT structure – requires 90% income distribution
Interest is the primary ongoing cost of borrowed capital – the price a lender charges for the use of money over time. Commercial interest rates are generally indexed to a benchmark (the Federal Funds Rate, SOFR, or Prime) plus a spread that reflects the lender's risk assessment of the deal, the borrower, and the property type. Understanding how rates are built and how to optimize them is one of the highest-leverage skills in real estate finance.
Fed Rate + 3% or more (currently 7.5% - 13% depending on loan type and risk)
Higher for hard-money, bridge, and high-risk loans – can reach 12%-15%+ for distressed situations
Possible adjustment proportional to the Loan-to-Value (LTV) Ratio – lower LTV often earns a rate reduction
Fixed vs. floating: fixed provides payment certainty; floating (usually Prime or SOFR + spread) can save money in declining rate environments but adds risk
Rate buydown with points: paying 1 point upfront reduces rate by approximately 0.25%; the IRR benefit is roughly 1% over 5 years, 2% over 10 years – worthwhile primarily for long holds or when cash flow is tight
Prepayment penalties (step-down, yield maintenance, defeasance) can make early payoff very expensive – always model the exit before signing
Fees (not all levied)
Loan fees are one-time charges assessed by the lender and intermediaries at origination or closing. They represent a significant component of total financing cost – especially on shorter-term loans where they cannot be amortized over many years. Always request a full fee schedule in writing before committing to a lender, and compare total cost of capital (rate + fees) not just the stated interest rate.
Initiation/Consulting: 1-3% of loan amount, if needed; minimum $2,000 – covers broker/advisor fee for sourcing and packaging the deal
Origination: 1-3% – lender's fee for processing and underwriting; negotiable on larger loans or repeat business
Bank Participation (SBA): 0.5% – fee paid to participating bank in SBA 504 structure
SBA Guarantee Fee: 0.5%-3.75% of guaranteed portion – paid to SBA; waived for loans under $150K and veterans
Total fees: typically 1%-7% of loan amount across all parties – build this into your deal pro forma from day one
Fees are sometimes negotiable based on loan size, borrower relationship, and competitive alternatives – always ask
Get a Loan Estimate or Good Faith Estimate in writing as early as possible; surprise fees at closing are a red flag
Pass-Through Costs
Pass-through costs are third-party expenses that the lender requires but does not profit from – they are passed directly to the borrower at actual cost. These can add $5,000 to $50,000+ to a commercial transaction depending on deal size and complexity, and they are largely non-negotiable because they are mandated by the lender's underwriting process. Budget for them early and get vendor estimates before signing a term sheet.
Business Credit Report: $50-$200; lender pulls business and personal credit on all 20%+ owners
Verifications: employment, deposit, income, and identity verifications – typically bundled into origination
Appraisal: $3,000-$15,000+ for commercial properties; required by virtually all institutional lenders; order early as delays are common
Survey: $1,500-$5,000; confirms boundaries, easements, encroachments – required for most CRE transactions
Title Search and Insurance: $2,000-$10,000; lender requires title insurance protecting their lien position
Recording Fees: $100-$500; county recording of deed, mortgage, and related documents
Inspection: $500-$5,000 for property condition assessment; lenders may require full PCA for larger deals
Travel: site visit expenses if lender's team travels to inspect the property
Permits: if construction or renovation is involved; cost varies widely by jurisdiction and scope
Legal: 0.05% of loan amount, minimum $2,000; lender's attorney drafts loan documents; borrower often pays both sides
Environmental Site Assessment (ESA): Phase I ESA $2,000-$5,000; Phase II (if contamination suspected) $10,000-$50,000+; required on all commercial acquisitions
Negotiated Code/Habitability Maintenance: lender may require specific repairs or code compliance as a condition of funding
At Closing
Closing costs are the final cash requirements due at the time of loan settlement. These are distinct from ongoing operating costs and represent the total out-of-pocket investment required to complete the transaction. For a commercial acquisition, total closing costs including down payment commonly range from 15%-35% of purchase price – careful modeling of closing costs is essential to avoid cash shortfalls at the table.
Down Payment: typically 10%-35% of purchase price or project cost; the largest single closing cost item
Property Taxes: prorated from closing date to end of current tax period; can be substantial on high-value properties
Prorated Interest: interest from closing date to end of first month; builds the first partial-month payment into closing
Liens: any existing liens on the property must be satisfied at closing from sale proceeds
Balance of Current Loan(s): existing mortgage payoff if refinancing; get a 30-day payoff statement from the current lender
6-12 months of interest reserves (high-risk or construction loans): lender may require funded reserves to ensure debt service even if property is not yet generating income
Escrow accounts for taxes and insurance are often established at closing – typically 2-6 months of payments funded upfront
Loan-to-Value (LTV) and Loan-to-Cost (LTC) – approximate
Normal (Conventional) LTV/LTC
Loan-to-Value (LTV) measures the loan amount as a percentage of the property's current appraised market value. Loan-to-Cost (LTC) measures the loan against the total project cost – including acquisition, construction, and soft costs – and is used when the property's value is not yet established (as in new construction or major rehab). Both ratios are fundamental to how lenders size loans and set rates.
Conventional LTV range: 50%-80% for most stabilized commercial properties
Lower LTV (50%-65%) typically earns a better interest rate – less risk for the lender
Higher LTV (75%-80%) possible for strong deals with institutional sponsors, but expect tighter covenants
Appraisal basis: can be "as-is" current value, "as-stabilized" (after lease-up), or "after-repair value" (ARV) for rehab projects
LTC is common in construction lending – a $10M project cost may support a $7M loan (70% LTC)
Government LTV/LTC (SBA, HUD/FHA)
Government-backed programs offer significantly higher leverage than conventional lenders, making them extremely valuable for qualifying projects. The government guarantee reduces lender risk, which translates directly into higher LTV and lower rates. However, eligibility requirements, use restrictions, and longer processing times are the tradeoffs.
SBA 7(a): up to 90% LTV for owner-occupied CRE; 10% borrower equity required
SBA 504: 50% from bank + 40% from CDC/SBA + 10% borrower = 90% total financing
HUD/FHA 223(f) multifamily: up to 85% LTV for market-rate; up to 87% for affordable
HUD/FHA 221(d)(4) construction: up to 85% LTC on new construction or substantial rehab
USDA Business & Industry (B&I): up to 80% LTV in rural areas; strong for agricultural and rural CRE
Refinance LTV (up to 100% in some cases)
Refinance LTV can exceed acquisition LTV in certain circumstances – most notably when a property has appreciated significantly, been substantially improved, or qualifies under a special program. Cash-out refinancing allows owners to extract equity from appreciated properties without selling, which can fund new investments, renovations, or business operations.
Rate-and-term refinance: typically same or slightly lower LTV as original loan (65%-80%)
Cash-out refinance: most lenders cap at 70%-75% LTV to maintain equity cushion
HUD/FHA 223(f) refinance: up to 80% LTV with cash-out on existing multifamily
Private and hard money lenders may allow higher LTV refinances based on ARV, but at significantly higher rates
BRRRR strategy refinance: buy distressed, rehab, rent, then refinance at ARV – can recover 80%-100% of invested capital if purchased and rehabbed correctly
Duration (Term)
Interest-Only or Construction Loans (up to 2 years)
Short-term interest-only loans are used during the construction, renovation, or initial lease-up phase of a project – before it generates enough stabilized income to support a permanent amortizing loan. During this period, the borrower pays only interest on the outstanding balance, preserving cash flow for construction draws, operating shortfalls, and reserves. At loan maturity the borrower either sells the asset or refinances into permanent financing.
Construction loans: typically 12-24 months; funds drawn in stages as construction milestones are met
Bridge loans: 6-36 months; used for repositioning, value-add, or acquisition before permanent financing is possible
Interest reserves: lender may fund an interest reserve at closing so the borrower doesn't have to make payments from pocket during construction or lease-up
Extensions: most bridge and construction loans offer 3-6 month extensions for a fee (0.25%-1%) if project is on track
Permanent "take-out" commitment: many construction lenders require a letter of intent from a permanent lender before funding – arrange this before breaking ground
Permanent Loans (5-30 years, with longer amortization)
Permanent loans are long-term, fully amortizing (or partially amortizing) mortgages that replace construction or bridge financing once a property is stabilized. The loan term is the period until the note matures; the amortization schedule is the period over which payments are calculated. Commercial loans commonly have a 10-year term with a 25-year amortization, creating a "balloon" balance due at the end of the term.
5-year fixed: common for smaller community bank loans; lower rate but exposes borrower to refinance risk sooner
7- or 10-year fixed: most common for institutional CRE; predictable payments; good balance of rate and certainty
25-30 year amortization: standard for most commercial loans; balances manageable monthly payments with reasonable equity buildup
Balloon risk: when the term ends, the remaining balance must be refinanced or paid; if rates are higher or lenders are tight, this can be a serious problem – plan refinance 12-18 months before maturity
Buying Businesses
Set up lenders in advance based on the collateral to be acquired
Before you identify a specific acquisition target, establish relationships with lenders who finance businesses in your target industry and size range. Pre-qualification – even without a specific deal – positions you to move quickly when the right opportunity appears, and signals to sellers that you are a credible buyer rather than a tire-kicker.
Pre-acquisition lender prep:
Identify 2-3 SBA 7(a) lenders with experience in your target business type
Prepare your personal financial statement, resume/bio, and a 1-page acquisition thesis in advance
Understand lender's minimum DSCR, down payment, and collateral requirements before finding a deal
Ask about seller note requirements – most SBA lenders want the seller to carry 10% as a sign of confidence
Be their salesman or consultant for equity and subsistence compensation until you own the company
One of the most creative acquisition strategies is to work inside the target business before buying it – as a consultant, sales representative, or interim operator. This builds trust with the owner, gives you verified inside knowledge of the business's real financials and operations, and often leads to more favorable terms when you're ready to make an offer.
Why this works:
Start implementing your growth policies in advance – prove your value before you own the risk
You'll quickly learn if you actually want to own the company – due diligence from the inside is far more valuable than any third-party audit
Sellers are far more likely to finance a buyer they know and trust than a stranger
Your salary or consulting fees during this period reduce your personal cash burn while you execute the acquisition
Other Options (Owner Carry, Profit Participation)
Beyond conventional and SBA financing, business acquisitions can be structured with creative instruments that reduce the buyer's cash requirement and align the seller's ongoing interests with the new owner's success. These tools are especially useful when conventional lenders won't fully fund the gap, or when the seller's tax situation makes an installment sale attractive.
Owner Carry (Seller Note): seller finances 10%-30% of the purchase price; subordinate to the bank loan; typical rate 5%-8%; term 3-7 years; SBA often requires this as evidence of seller confidence in the business
Profit Participation (Earnout): a portion of the purchase price is contingent on future business performance – seller receives additional payment if revenue or EBITDA targets are hit post-closing; aligns incentives and reduces upfront cash needed
Employment Agreement / Consulting Transition: seller stays on as a paid consultant or employee for 1-2 years; reduces transition risk and can substitute for part of the purchase price in practical terms
Equity Rollover: seller retains a minority equity stake (10%-30%) in the business post-acquisition; useful when seller wants continued upside and buyer wants reduced cash at close
Build relationship so Seller wants you at the helm
Business sellers – especially founders who built the company over decades – care deeply about what happens to their employees, customers, and legacy after the sale. A buyer who demonstrates cultural fit, shared values, and genuine respect for what was built has a significant advantage over an impersonal financial buyer, and often negotiates better terms as a result.
Relationship-building tactics:
Learn the seller's non-financial goals: employee retention, customer relationships, community reputation
Reference specific things about the business that you genuinely admire
Involve the seller in your transition plan – don't present a fait accompli
A seller who likes you will often accept a lower price, better terms, or more seller financing
The most successful business acquisitions are won in the preparation phase, not at the negotiating table. Buyers who arrive with relationships already built, financing pre-arranged, and a clear operational transition plan in hand move faster, pay less, and close more deals than those who scramble after finding an opportunity.
Coordinate clearly with key employees before close – retention of critical staff is often worth more than any individual asset; identify who is essential and build a transition and retention plan
Seller can finance equipment, real estate, and cash-flow components separately – maximizing seller financing on each asset class reduces bank loan requirements and may improve total deal terms
Loans assumed on purchase: existing low-rate debt can be a significant value component – verify assumability early and factor the assumption process into your timeline (lender approval required)
Build a 90-day and 1-year operating plan before closing; be ready to execute on day one
Establish your banking relationship with the acquiring entity before close – accounts, lines of credit, and merchant services take time to set up
Submittal Requirements - not all requested by each Source – We Sequence, Streamline and Optimize Applications
Project – What you are building or acquiring, and why it makes sense
Name
The formal legal name of the project or borrowing entity. Consistency across every document – application, title, insurance, permits – is essential; mismatches between documents are one of the most common causes of underwriting delays and requests for re-submission.
Powerful Description (one paragraph)
A single compelling paragraph capturing the project's purpose, location, market opportunity, and financial thesis. This is the lender's or investor's first impression – make it specific, not generic. Include property type, size, strategy (acquire / build / reposition), target market, and expected returns. A well-written description reduces back-and-forth questions and signals that the sponsor has thought the deal through thoroughly.
Location
Full address including street, city, county, state, and zip. Also note proximity to major employment centers, transportation corridors, retail anchors, or institutions that support value. Flag if the property falls within an Opportunity Zone, Enterprise Zone, HUD-designated area, or other program geography – this can open additional financing options.
Government Approvals (permits, planning commission, etc.)
List every required government approval and its current status: planning commission decisions, zoning variances, conditional use permits, building permits, and any pending appeals. Pending items are not disqualifying, but they must be disclosed with realistic timelines – lenders build approval risk into their underwriting, and surprises mid-process can kill a deal.
Franchise (disclosure documents)
If the business operates under a franchise agreement, include the current Franchise Disclosure Document (FDD). Lenders need to evaluate the franchise system's support structure, required royalties and fees, transfer approval process, and any territorial restrictions – all of which directly affect the business's cash flow and the collateral's future marketability.
State the specific use of the loan proceeds: full or partial acquisition, rate-and-term refinance, cash-out refinance, construction, substantial rehabilitation, equipment purchase, or working capital. "General business purposes" is a red flag to experienced lenders – specificity demonstrates that you understand your own deal and have a clear deployment plan.
Amount (US$)
The requested loan amount in US dollars. If a range is acceptable, provide both a target and a minimum that still makes the deal work. Show how you arrived at the number – purchase price minus down payment, or project cost minus equity – so the lender can immediately verify internal consistency with the rest of your submittal.
Down Payment (US$, maximum available)
The maximum cash you can contribute at closing, and the source of those funds – personal savings, equity from another property, investor contributions, or seller carry. Lenders verify source of funds carefully; gifted funds, borrowed down payments, and undisclosed secondary financing all require disclosure. Larger down payments typically unlock better rates and terms.
APR (maximum acceptable; fixed or floating)
Your maximum acceptable interest rate and whether you prefer fixed or floating. If you have competitive quotes from other lenders, mention them – not as a threat, but as market evidence. Understanding your rate sensitivity helps the lender determine quickly whether their current pricing fits your deal, saving everyone time.
Minimum LTV or LTC
The minimum loan-to-value or loan-to-cost ratio you require for the deal to pencil. This is the leverage floor below which the equity gap becomes too large to bridge with available capital. Stating this upfront lets lenders self-select – if their maximum LTV is below your minimum, there is no deal to pursue.
Other Lenders in Play (optional)
Disclose if you are simultaneously working with your existing bank, an SBA preferred lender, or other financing sources. This is not a negotiating tactic – it is professional transparency that helps the lender understand the competitive context, often motivating faster responses and sharper terms.
Other Lenders Turned Down (optional)
If any lender has previously declined this specific deal, disclose it and explain the reason. Attempting to hide prior declines is a serious credibility issue – lenders talk to each other and conduct reference checks. A clear explanation of what has changed since a prior decline (new appraisal, improved occupancy, sponsor equity added) can actually strengthen your current application.
Owner Carry (% range and agreement, if applicable)
If the seller is financing a portion of the purchase price, provide the agreed percentage range and any terms already discussed. A draft promissory note or term sheet is ideal. Many SBA lenders specifically require seller carry as evidence that the seller has confidence in the business's continued success post-sale.
Company Name (legal entity with suffix and registration state)
The exact legal name of the borrowing entity, including the entity type suffix (LLC, Inc., LP, Sub-S, etc.) and the state of registration. This must match the EIN registration, state records, and every other document in the package exactly. Even minor variations – "The" vs. no "The," comma placement – can create title and closing complications.
Term (years)
Your desired loan term, amortization period, and whether you prefer a balloon or fully amortizing structure. Also note any prepayment flexibility requirements – if you expect to sell or refinance within 3-5 years, a step-down prepayment penalty is far preferable to yield maintenance or defeasance, which can be extraordinarily expensive to exit early.
Use of Funds (itemized by category and year)
An itemized breakdown showing exactly how every dollar of loan proceeds will be deployed: real estate acquisition, construction hard costs, soft costs, equipment, tenant improvements, closing costs, working capital reserves, and any cash-out. For multi-phase projects, provide a schedule by year. This is the document that gets stress-tested in underwriting – make it airtight.
Business Documents – Your company's story, strategy, and proof of concept
A condensed 1-2 page summary covering the four M's: Mission (what you do and why), Market (size, growth, competition), Management Team (who is leading and why they will succeed), and Money (financial projections and funding ask). This is the single most important document for generating initial interest – lenders and investors decide within minutes whether to read further. Prosper Systems reviews this document at no cost or obligation.
Executive Summary (condensed Business Plan, 5-10 pages)
A more detailed version of the overview covering all elements of the business plan in a readable format. Used when the lender or investor wants more substance than a two-pager but is not yet ready to commit to reviewing the full plan. Typically follows the same structure as the business plan but at higher altitude – conclusions and key data, not full analysis.
Pitch Deck (10 slides, 20 minutes, 30-point type)
A visual presentation – PowerPoint or PDF, sometimes with embedded video or a narration script – designed to be presented in 20 minutes following Guy Kawasaki's 10/20/30 rule. The 10 slides should cover: problem, solution, market size, business model, traction to date, competitive landscape, team, financial projections, use of funds, and the ask. Large type forces discipline – if it doesn't fit in 30-point font, the concept isn't clear enough yet.
A comprehensive document (typically 20-50 pages) covering every dimension of the business: company description, market analysis, competitive positioning, operations plan, management team bios, marketing and sales strategy, financial projections (3-5 years), and funding requirements. Required for SBA loan applications, HUD program submissions, and any serious equity raise. The process of writing a thorough business plan is itself a valuable strategic exercise – gaps in your thinking surface on paper before they surface in the market.
A legally required disclosure document for private securities offerings under Regulation D or other SEC exemptions. Describes the investment opportunity in detail, including use of proceeds, risk factors, management compensation, conflicts of interest, and investor rights. Must be prepared by a securities attorney familiar with the offering type. Attempting to raise equity from investors without a proper PPM exposes the issuer to serious civil and criminal liability under securities law.
Financials – The numbers that prove the deal works
Profit and Loss Statement (current YTD + prior 2-3 years, CPA-certified)
The P&L shows revenue, cost of goods sold, operating expenses, and net income over a defined period. Current year YTD plus the prior 2-3 annual statements are typically required. If current-year tax returns have not been filed, provide a current-year P&L certified by a licensed accountant. The P&L must reconcile with bank deposits and tax returns – lenders compare all three, and unexplained discrepancies create serious underwriting problems.
Balance Sheet (less than 90 days old; 30 days preferred)
The balance sheet shows total assets, total liabilities, and owner's equity at a specific point in time. Lenders use it to verify net worth, identify undisclosed debts, and assess liquidity. It must be current – a balance sheet more than 90 days old is typically rejected. For larger deals, lenders may require quarterly balance sheets for the trailing year to identify trends.
Debt Schedule (all business obligations, current)
A complete list of every business debt obligation: lender name, original balance, current balance, monthly payment, interest rate, maturity date, and collateral pledged. Must include all term loans, lines of credit, equipment financing, vehicle loans, and any informal obligations. Omitting debts that later surface in underwriting is treated as misrepresentation – a deal-ending credibility failure.
Financial Projections (minimum 3 years; monthly Year 1, annual Years 2-5)
Forward-looking income statements and cash flow projections showing how the business will perform after the loan is funded. Monthly detail for year one, annual summaries for years two through five. Must include clearly stated assumptions (occupancy rate, rental growth, expense ratios, revenue per unit) so lenders can test sensitivity. Overly optimistic projections without supporting logic damage credibility more than conservative ones do.
Sales Tax Rates (if any sales income)
Applicable state and local sales tax rates if the business collects sales tax. This detail helps lenders understand your true net revenue – gross revenue minus sales tax collected is not the business's income. It also confirms you understand your compliance obligations, which is a basic indicator of operational competence.
Bank Statements (3-6 months, all accounts)
Three to six months of complete statements for all business bank accounts – checking, savings, money market, and any retirement accounts owned by the business. Lenders compare average daily balances and monthly deposit totals against your reported revenue to verify that the income on paper matches the money actually flowing through accounts. Large unexplained deposits or regular large transfers require documentation.
For properties where a single tenant generates the majority of income – NNN leases, medical office buildings, single-tenant retail – the tenant's financial health is the primary credit risk. Lenders require the tenant's audited financial statements or Dun & Bradstreet report to assess whether the tenant can sustain its lease obligations through the loan term.
Invested to Date (US$M)
Total capital already deployed in the project from all sources – sponsor equity, investor contributions, prior construction draws. Demonstrates skin in the game and reduces lender risk perception. A sponsor who has already invested $2M in a $10M project is a fundamentally different credit risk than one who has put in nothing.
Planning to Invest in Future (US$M)
Committed future capital contributions from the sponsor or investors – relevant for phased developments, ongoing capital improvement programs, or projects where additional equity will be required to complete. Lenders need confidence that the full capital stack is assembled before they fund their portion.
Income Documentation (2-3 years; business and personal for 20%+ owners)
Last two to three years of income documentation for the business and all individuals with 20% or greater ownership: W-2s, K-1s, 1099s, and Schedule C or E as applicable. For self-employed borrowers, add-backs of depreciation, depletion, and certain one-time expenses are typically allowed – a knowledgeable broker can help maximize documented qualifying income.
Tax Returns (2-3 years; business and personal for 20%+ owners)
Complete signed federal tax returns for the past two to three years – business entity returns and personal returns for all owners with 20% or greater interest. If extensions have been filed, include the extension and the most recent year's return. Lenders order IRS tax transcripts (Form 4506-C) to verify returns independently – the documents you provide must match IRS records exactly.
Operating Statements (3 years of actual income and expenses)
Three years of historical income and expense statements for the property or business being financed – distinct from tax returns, these show actual operating performance in detail. Used to verify the historical NOI trend, identify seasonal patterns, and flag anomalies. A property with declining NOI over three years requires a credible explanation and forward plan.
Debt Service Coverage Ratio equals Net Operating Income divided by annual debt service (principal plus interest). The DSCR is the single most critical underwriting metric for income-producing properties. A ratio below 1.0x means the property does not generate enough income to cover its own loan payments – an automatic decline at virtually every lender. Most conventional lenders require 1.20x; 1.25x or higher is preferred and often required for higher LTV loans. Model this before approaching any lender.
Sponsor – Who is behind the deal, and why they will succeed(duplicate for each 20%+ owner)
Full Name (with title in company)
Legal name exactly as it appears on government-issued ID, with the individual's title in the borrowing entity (Managing Member, President, General Partner, etc.). Must be consistent across every document in the package. Even small variations – middle name included vs. omitted, nickname vs. legal name – create complications in title and compliance.
Credit Rating (personal and business; source; actual or estimate)
Personal FICO score (most lenders pull Experian, Equifax, and TransUnion and use the middle score) and business credit score (Dun & Bradstreet PAYDEX, Experian Business) if established. Provide the approximate score and source so the lender can pre-screen before pulling credit. Most commercial lenders want 680+ personal FICO minimum; SBA preferred lenders typically want 680-700+. Scores below 640 significantly limit options and increase rates.
Bio / Resume (especially for new ventures)
A one to two page professional summary covering relevant industry experience, properties or businesses previously owned or managed, notable transactions completed, and professional credentials. For new ventures where there is no operating history to underwrite, the sponsor's track record is the primary underwriting factor. A compelling bio can make a marginal deal fundable; a thin or missing bio can sink a strong deal.
Service Address (rent or own)
Current residential and business addresses. Must match the addresses on file with credit bureaus – discrepancies between reported addresses and credit report addresses trigger fraud alerts. Note whether you rent or own your residence, as homeownership is viewed positively as a sign of stability and provides additional collateral context.
Citizenship (US citizen, permanent resident, or visa status)
US citizens and permanent residents (green card holders) qualify for the full range of financing options. Foreign nationals can obtain commercial loans but face additional documentation requirements – typically a valid passport, visa with sufficient remaining term, ITIN or SSN, and sometimes a larger down payment. FIRPTA withholding requirements apply to foreign seller transactions and must be addressed at closing.
IRS Issues (liens, payment plans, disputes)
Any outstanding federal or state tax liens, installment agreements, or unresolved disputes with tax authorities. Must be disclosed – lenders order IRS tax transcripts and will discover these independently. An unexplained federal tax lien appearing in title search at the last moment can kill a deal that is otherwise ready to close. If you have IRS issues, address them before applying and provide a written explanation with documentation of the resolution status.
Mortgage Lates (any late payments in last 24 months)
Any mortgage payments made 30 or more days late in the past 24 months on any property. Even a single 30-day late is a significant negative for most lenders, as mortgage payment history is treated as the strongest predictor of future loan performance. If a late payment occurred, provide a written explanation (job loss, medical emergency, servicer error) and evidence that the situation has been resolved.
Felony Convictions
SBA loans, HUD programs, and many conventional lenders require disclosure of all felony convictions. Financial crimes, fraud, and recent felonies involving dishonesty are typically automatic disqualifiers. Non-financial felonies are evaluated case by case depending on time elapsed and circumstances. Always consult a qualified attorney before submitting a loan application if a conviction exists – attempting to conceal it is far more damaging than disclosure.
Last IRS Filing (year filed; current status)
The most recent year for which federal income tax returns have been filed, and confirmation that filings are current. Gaps in tax filing history – even one missing year – are serious red flags that suggest unreported income, tax evasion exposure, or financial disorganization. If returns are delinquent, engage a CPA to bring them current before approaching lenders.
Other Investment / Rental Properties / Assets
A complete schedule of all real estate holdings, significant investments, and major assets: property address, purchase price, current estimated value, outstanding mortgage balance, monthly rental income, and monthly payment. Lenders assess the overall portfolio for concentration risk, total leverage, and whether existing properties are cash-flow positive or draining resources. Hidden properties discovered in title or public records create serious credibility issues.
Liquidity (US$ available immediately; verified by bank statements)
The total dollar amount of immediately accessible liquid assets: checking, savings, money market, and brokerage accounts. Most lenders want to see post-close reserves equal to 3-12 months of debt service payments remaining in liquid form after the down payment and closing costs are paid. Retirement accounts (IRA, 401k) count at 60%-70% of value due to early withdrawal penalties and taxes. Funds must be verified by recent bank statements.
Industry Background (properties/businesses owned and managed)
Specific, quantified experience directly relevant to this transaction: number of properties owned, total square footage managed, types of properties (multifamily, retail, industrial), years of experience, and similar transactions completed. The more directly your background mirrors the current deal, the lower the perceived execution risk. A first-time buyer of a 50-unit apartment complex faces significantly more scrutiny than a sponsor who has successfully completed three similar transactions.
Full disclosure of any prior foreclosures, deed-in-lieu transactions, short sales, personal or business bankruptcies, or criminal matters. Lenders conduct thorough public records searches and will find these. The disclosure itself is not automatically disqualifying – the circumstances, time elapsed, and what has changed since are what matter. A well-crafted explanation letter with supporting documentation of recovery can keep a deal alive; concealment cannot.
Net Worth (US$M, assets minus liabilities)
Total personal net worth calculated as all assets minus all liabilities. Many lenders require sponsor net worth equal to or exceeding the loan amount for full-recourse loans. The net worth statement must be supported by documentation – tax returns, bank statements, brokerage statements, property values – and must be consistent with the rest of the financial package. Inflated net worth statements are a form of bank fraud.
Corporate Tax ID (EIN)
The federal Employer Identification Number for the borrowing entity, obtained from the IRS. Must be active, match IRS records exactly, and be consistent across all documents. A new LLC or corporation must obtain its EIN before a bank account can be opened or a loan application submitted. EINs are obtained instantly online at IRS.gov at no cost.
Passport (identity verification)
A valid government-issued passport is required for identity verification on larger commercial transactions and for all non-US citizens. Many institutional lenders now require passport copies from all sponsors as part of Bank Secrecy Act and anti-money-laundering (AML) compliance, regardless of citizenship. Ensure your passport is current – an expired passport causes closing delays.
Accept Recourse (full, partial, or non-recourse with carve-outs)
Whether the sponsor will personally guarantee the loan (full recourse), guarantee only a portion (partial recourse), or take a non-recourse loan where the lender's remedy in default is limited to the collateral with no personal liability – except for defined "bad boy" carve-outs (fraud, misrepresentation, environmental violations, bankruptcy filing). Non-recourse is generally available only on larger institutional loans ($5M+) from life companies, CMBS conduits, or agency lenders. Understand precisely what you are signing before the loan documents are executed.
We Sequence, Streamline and Optimize Applications
Collateral – The assets securing the loan(duplicate for each asset)
Type (RE, vehicle, equipment, patent, precious metals, gems)
The category of asset being pledged as collateral. Each type has a different liquidation timeline and lender comfort level: real estate is preferred (slow to depreciate, established market), equipment and vehicles depreciate faster and have narrower resale markets, while intellectual property and precious metals are accepted by fewer lenders and require specialized appraisal. Know what your collateral is worth to a lender in a forced-sale scenario, not just at market value.
Other Collateral (additional assets to increase LTV or reduce rate)
Additional assets beyond the primary collateral that can be cross-pledged to strengthen the loan package – a second property, a vehicle fleet, equipment, or even a brokerage account. Cross-collateralization can increase the lender's effective security position, allowing higher LTV on the primary asset or a lower interest rate. Understand that cross-collateralization means the lender can pursue all pledged assets in a default, not just the primary one.
Address (including county)
Full property address including county. County is specifically required for title search, lien filing, and recording of the mortgage or deed of trust. Errors in the county designation can result in an improperly recorded lien – a serious legal problem that typically must be corrected before closing can proceed.
Estimated Value (with source)
Your current estimate of the collateral's market value, along with the source: a recent formal appraisal (most credible), comparable sales analysis, tax assessment (least credible – often significantly different from market), or broker opinion of value. Be conservative – lenders will order their own independent appraisal, and if your estimate is materially higher than the appraisal, it creates a credibility problem that affects the entire application.
Year Built / Last Renovated
The original construction year and the date and scope of any significant capital improvements or renovations. Older buildings with no documented renovation history raise concerns about deferred maintenance, obsolete mechanical systems, and potential environmental issues (asbestos, lead paint in pre-1978 construction). A well-documented capital improvement history supports value and demonstrates active stewardship.
Size (square feet or units)
Total gross building area in square feet for commercial properties, or number of units for multifamily. Also provide net rentable area (NRA) separately from common area – lenders and appraisers underwrite on rentable square footage, not gross. For mixed-use properties, break out square footage by use type (residential, retail, office, parking).
Purchase Price (original acquisition cost)
The price originally paid to acquire the property or asset. Compared to current estimated value, this establishes the appreciation or depreciation since acquisition and documents the equity that has built up over the holding period. Lenders use this to assess the reasonableness of your current value estimate and to understand the history of the asset.
Date of Purchase
The closing date of the original acquisition. Seasoning – the time elapsed since purchase – affects cash-out refinancing availability. Most lenders require 6-12 months of ownership before a cash-out refinance, and some agency programs require 12-24 months. For fix-and-flip exits, lenders financing the buyer sometimes require the seller to have owned the property for a minimum period to prevent property flipping fraud.
Mortgage / Lien Balances (with statements and amortization schedules)
The current outstanding balance on all existing loans, liens, and judgments secured against the collateral. Provide the most recent monthly statements and full amortization schedules for each. Lenders need these to calculate the current equity position and to determine the payoff amounts required at closing. Undisclosed liens discovered during title search are a common deal-killer – order a preliminary title report early in the process.
Seasoning Complete (or expected date if not yet complete)
Whether the required ownership or holding period has been fully satisfied. If seasoning is not yet complete, provide the date it will be met and confirm the lender's policy on that timeline. Some lenders will commit to the loan now with a delayed close timed to the seasoning completion; others will not begin underwriting until the period is complete.
Pictures (numbered sequentially)
Current photographs of the property: exterior from multiple angles, all interior spaces, mechanical rooms, roof (if accessible), parking, and any deferred maintenance items. Number photos sequentially and provide a brief caption for each. High-quality, well-organized photography signals pride of ownership and gives the lender a clear picture before the formal appraisal – a lender who has already mentally walked the property processes the appraisal faster and with fewer surprises.
Insurance Policies (fire, theft, flood, liability, loss of rent)
Current declarations pages for all property insurance policies. Lenders require evidence of adequate coverage as a condition of funding and as an ongoing loan covenant. Required policies typically include: hazard/fire, general liability, and flood insurance if the property is in a FEMA flood zone. Income-producing properties should also carry loss of rents coverage. Ensure lender is named as additional insured and mortgagee on all policies.
Other Information (value enhancements or clarifications)
Anything that adds context, enhances perceived value, or requires upfront explanation: recent capital improvements not yet reflected in the appraisal, pending lease executions that will improve NOI, deferred maintenance with a documented remediation plan, unique property features that comparable sales don't capture, environmental certifications (LEED, Energy Star), or any litigation involving the property. Proactive disclosure of issues with accompanying solutions is far better than having them surface unexpectedly in due diligence.
Real-Estate-Specific Collateral – Income and operating details for the property
New Purchase (LOI, Agreement, or Contract)
For acquisitions, provide the signed Letter of Intent, Purchase and Sale Agreement, or fully executed Contract. Lenders need to see the agreed purchase price, any contingencies (financing, inspection, due diligence), earnest money deposited, and the scheduled closing date. The contract terms directly affect underwriting – seller concessions, assumed loans, and personal property included in the sale all require documentation and analysis.
Current zoning classification and confirmation that the intended use is a permitted use by right – not conditional or requiring a variance. Include any existing variances, conditional use permits, or non-conforming use status. Lenders are very cautious about properties with non-conforming uses because in a default and forced sale, the use restrictions could significantly limit the buyer pool and therefore the collateral's realized value.
Owner Occupied (%)
The percentage of total leasable space occupied and used by the borrower's own business. This is a critical factor for SBA financing, which requires at least 51% owner-occupancy for existing buildings and 60% for new construction. Owner-occupancy also affects conventional lender underwriting – owner-occupied properties are generally viewed as lower risk than purely investment properties because the borrower has a direct business stake in the collateral's performance.
Occupancy (total % by paying tenants)
The percentage of total leasable square footage or units currently occupied by rent-paying tenants. Most lenders require 85%-90% occupancy for permanent conventional or agency financing. Properties below 80% occupancy are typically considered "transitional" and require bridge or value-add financing at higher rates. Occupancy should be measured at the time of application and verified again just before closing – lenders may re-check if closing is delayed.
A complete tenant roster showing: tenant name and business type, space size, lease commencement and expiration dates, monthly base rent, and any rent escalations, renewal options, or termination rights. Government-subsidized tenants (Section 8, HUD vouchers, government agencies) are valued differently – their subsidized rents are highly stable but may be below market, and lenders weight them accordingly. National credit tenants (Walgreens, Dollar General, Starbucks) command premium valuations and lower cap rates.
Total Income (all annual income sources)
All annual income generated by the property: base rents (the largest component), percentage rents (retail leases tied to tenant sales), parking fees, vending machine revenue, storage rents, laundry income, cell tower leases, and any other recurring income streams. Use actual last-12-months figures for stabilized properties. For properties in transition or lease-up, show current actual and pro forma stabilized separately, with clear assumptions supporting the pro forma.
Total Expenses (all annual operating expenses, excluding debt service)
All annual operating costs: real estate taxes, property insurance, utilities (if landlord-paid), property management fees (typically 4%-10% of gross rents), janitorial and landscaping, routine maintenance and repairs, and a capital reserves allowance (typically $200-$500 per unit per year for multifamily; $0.10-$0.25 per SF for commercial). Do not include mortgage payments – debt service is calculated separately by the lender. Many borrowers understate expenses, which produces an inflated NOI that gets corrected during underwriting, reducing the approved loan amount.
Net Operating Income (NOI = Income minus Expenses, before debt service)
Net Operating Income is total effective gross income minus total operating expenses, before subtracting mortgage payments, depreciation, or income taxes. NOI is the fundamental measure of a property's earning power and the basis for both DSCR calculation and capitalization-rate valuation. A small error in NOI – omitting a major expense category or counting non-recurring income as recurring – has an outsized impact on both the appraised value and the maximum supportable loan amount.
Rent Roll (all tenants, lease terms, rent steps, renewal options)
A current spreadsheet listing every tenant unit by unit: tenant name, lease start and end dates, monthly base rent, scheduled rent increases (steps), renewal options (term and rate), and any termination or co-tenancy rights. The rent roll is the foundational document for income analysis – everything else is derived from it. Lenders verify the rent roll against executed lease documents for all significant tenants. Provide all underlying leases for tenants representing more than 10% of income.
Taxes (annual real estate tax, 3-year history)
The most recent annual real estate (property) tax bill and ideally the prior two years for trend analysis. Note if the property has recently been reassessed or if a reassessment is pending – post-closing reassessment at the sale price can significantly increase the tax burden and reduce NOI. Some jurisdictions reassess automatically on sale; factor this into your pro forma expense projections.
Insurances (annual premiums, all policies)
Total annual insurance premiums for all policies covering the property: hazard/fire, flood, general liability, umbrella, loss of rents, and any specialty coverage (earthquake in certain markets, wind/hurricane in coastal areas). Insurance costs have risen dramatically in many markets – use current renewal quotes rather than prior-year actuals to ensure your expense projections are realistic. Lenders will verify insurance at closing and require evidence of renewal throughout the loan term.
Owners' Association Fees (annual HOA/POA dues and reserve status)
Annual homeowners' or property owners' association dues, special assessments, and the association's reserve fund status. Underfunded HOA reserves are a risk factor – they indicate likelihood of future special assessments that will increase operating costs. Lenders review HOA financial statements for condo projects and some commercial associations to verify the association's financial health.
Rent to Family Members (%)
The percentage of rental income derived from family members, related parties, or affiliated entities. Lenders discount or exclude related-party rents because they may not reflect true market rates and may be difficult to collect on an arm's-length basis if the personal relationship deteriorates. Related-party leases should be documented with formal lease agreements at demonstrably market-rate terms to receive full credit in the income analysis.
Historical Occupancy (3 years)
Annual occupancy percentages for the past three years, ideally by quarter. Historical occupancy reveals the property's true stability – a property currently at 95% that was at 65% two years ago tells a very different story than one that has maintained 92%-96% consistently. Declining occupancy trends require explanation and a credible forward plan. Rising trends from a low base may indicate lease-up risk is not yet complete.
Historical Sales per Square Foot (retail properties, 3 years)
For retail properties with percentage rent leases, tenant sales per square foot over three years is a key indicator of tenant health and lease sustainability. National averages vary dramatically by retail category – grocery-anchored centers typically run $400-$600/SF, while lifestyle and fashion retail can range from $200/SF (weak) to $800+/SF (strong). Declining sales trends signal that tenants may not renew at current rent levels, which directly impacts the property's long-term income and value.
Startups – Special requirements for businesses under 12 months old
Business Type (real estate, technology, product, service, non-profit)
The fundamental category of business: real estate (acquisition, development, management), technology (SaaS, platform, hardware), product (consumer or B2B), service (professional, retail, hospitality), non-profit, or social enterprise. Each category has different lender and investor expectations, different documentation standards, and different program eligibility. Defining this precisely upfront helps direct the application to the right sources and programs from the start.
Business Documents (see Business Documents section above)
All items in the Business Documents section – Overview, Executive Summary, Pitch Deck, Business Plan, and PPM if applicable – are required and carry extra weight for startups because they substitute for the operating history that doesn't yet exist. For a startup, the business plan is not supplementary – it IS the underwriting. It must be thorough, realistic, and clearly written by someone who has thought deeply about every aspect of the business.
Location (virtual, home, office, or facility)
Where the business operates: fully virtual (remote-first with no physical space), home-based, shared coworking space (name the facility), leased office or retail, or owned facility. Include the full base address regardless of type. Location affects business licensing, zoning compliance, sales tax nexus, and the lender's assessment of the business's professional credibility. A business that intends to operate in a space requiring a certificate of occupancy must have that approval before funding.
Initial Funding (all sources already deployed)
Document every source of capital already committed or deployed: personal lines of credit, credit card balances, second mortgages, friends and family loans or equity, supplier credit, customer deposits, convertible notes, seed investor contributions, and any grant funding received. This demonstrates resourcefulness and shows the lender that others have already validated the venture with real money. It also helps identify the full capital stack and any existing obligations that will affect the new loan's security position.
The legal entity type under which the business operates. Each structure has different tax treatment, liability protection, and investor compatibility: sole proprietorships offer no liability protection; LLCs are the most common for real estate and small business; S-Corps provide pass-through taxation with some payroll tax advantages; C-Corps are required for venture capital investment and stock option plans; non-profits require 501(c) designation for tax-exempt status. The chosen structure should be intentional and reviewed by both an attorney and a CPA before formation.
Trade Name / DBA (if different from legal entity name)
If the business operates under a name different from the legal entity name, that "doing business as" (DBA) or trade name must be registered with the appropriate state or county authority. Must be consistent across all marketing materials, contracts, bank accounts, and legal documents. Unregistered trade names create legal and financing complications and can prevent the business from enforcing contracts or opening bank accounts under that name.
Government Approvals (zoning, permits, licenses, registrations)
Every government approval required to legally operate the business: local business license, zoning compliance or conditional use permit, professional licenses (contractor, real estate, healthcare, food service), health department permits, state business registration, and any federal permits or registrations. List each approval with its current status and expected date if pending. Lenders will not fund a business that lacks the legal authority to operate – approvals must be in hand or clearly imminent before closing.
Patents (submitted or approved)
Any intellectual property protection sought or obtained: utility patents (filed date and application number; approved patent number and expiration), design patents, provisional applications, trademarks, and copyrights. IP protection affects valuation, competitive moat assessment, and in some cases can serve as loan collateral. Even a provisional patent application (inexpensive, provides 12 months of "patent pending" status) demonstrates that the founder has taken steps to protect proprietary technology.
Initial Costs (startup budget by category)
A detailed budget of all one-time startup expenditures: inventory and initial stock, security deposits on leased space, equipment purchases, real estate buildout and tenant improvements, accounting and legal setup fees, website and technology infrastructure, initial marketing and brand development, and hiring costs (recruiting, training, onboarding). Lenders use this to verify that your funding request is sized correctly and that you have not omitted significant cost categories that will consume capital post-close.
Ongoing Business Costs (monthly operating budget)
A month-by-month operating cost projection covering all recurring expenses: facility rent and utilities, marketing and advertising, total payroll including owner draws, professional service retainers (attorney, accountant, bookkeeper), insurance premiums, vehicle and transportation costs, technology subscriptions, maintenance and repairs, and travel and entertainment. Lenders use this to project cash flow and determine whether projected revenue is sufficient to cover both operating costs and debt service – with a margin of safety.
All required payroll compliance registrations: federal EIN for payroll tax deposits, state employer registration, state unemployment insurance (SUI) account, workers' compensation insurance policy, and state disability insurance where required. These must be in place before the first employee is paid. Deadlines for initial registration vary by state – many require registration within 20 days of the first payroll. Payroll compliance failure results in significant penalties and personal liability for the business owner.
Payroll Compliance (employee vs. independent contractor classification)
Proper classification of every worker as either a W-2 employee or a 1099 independent contractor under IRS guidelines (the "ABC test" or common law rules depending on the state). Misclassification – treating employees as contractors to avoid payroll taxes and benefits – is one of the most heavily audited areas by the IRS and state labor departments. Penalties include back taxes, penalties, interest, and personal liability for the business owner. When in doubt, consult an employment attorney before classifying workers.
All insurance policies required for the business: officers and directors (D&O) liability, commercial property and fire, commercial auto, general liability, and professional liability (errors and omissions / E&O) if the business provides professional services or advice. Include carrier names, policy numbers, coverage limits, and annual premiums. Many lenders require proof of insurance before funding and as an ongoing condition of the loan. Adequate coverage also protects the business from catastrophic uninsured losses that could impair loan repayment.
Accounting System (method and software)
The accounting method (cash basis – record when money changes hands – or accrual basis – record when earned or incurred) and the software platform in use (QuickBooks Online, Xero, FreshBooks, Wave, NetSuite, or other). Professional accounting from day one avoids costly reconstruction later and makes financial reporting, tax preparation, and lender document requests far more efficient. The choice of cash vs. accrual has tax implications – discuss with your CPA before the business opens.
Tax Identification (EIN)
The federal Employer Identification Number issued by the IRS to the business entity. Required to open business bank accounts, hire employees, file business tax returns, and apply for most business financing. Sole proprietors with no employees can use their Social Security Number in some cases, but an EIN is strongly recommended for liability separation. Apply instantly and at no cost at IRS.gov – there is no reason to use a paid service for this.
Personal Income Requirements (founder draw: Years 1, 2, 3-5)
How much the founder or founders need to draw from the business each month to cover personal living expenses in the first year, second year, and years three through five. This is a real and often under-modeled cost – a business that cannot support both its debt service and its founder's minimum living requirements will fail regardless of its revenue trajectory. Lenders assess this to determine whether the business's projected cash flow is actually sufficient after all obligations are met.
The names, firms, and specialties of the professional advisors supporting the business: business formation and contracts attorney, tax strategy CPA or accountant, bookkeeper for day-to-day transaction recording, and any business or industry consultants engaged. Strong, credentialed advisors reduce perceived risk in the eyes of lenders and investors – they signal that the founder has built a support structure around the business and is not operating in isolation. List specific names, not just roles.
Groups and Networks (LinkedIn, associations, chambers, meetups)
Professional and community network memberships and activity: LinkedIn profile URL and connection count, industry trade association memberships, local chamber of commerce participation, business networking groups (BNI, Rotary), and any groups the founder hosts or leads (Meetup groups, LinkedIn groups, podcast communities). Active professional networks demonstrate market presence, access to customers and referral sources, and the kind of entrepreneurial hustle that lenders and investors look for in early-stage founders.
Investopedia's overview of commercial real estate loans covers the major loan types used to purchase, develop, or refinance income-producing properties. Commercial mortgages differ from residential loans primarily in term length (typically 5–20 years vs. 30 years for homes) and in that they are underwritten on the property's income-producing ability – measured by DSCR – rather than the borrower's personal income alone. Key loan categories covered include: conventional bank mortgages (25% down, fixed or variable rate); SBA 7(a) and 504 loans for owner-occupied properties; hard money loans for time-sensitive or distressed situations (10%–20% rates, asset-based underwriting); commercial bridge loans (6.5%–9%, up to 3 years); and construction loans covering hard costs on apartments, offices, retail, and industrial. The article also distinguishes between loans for investment (underwritten on rental income), loans for business (owner-occupied, underwritten on business cash flow), and loans for development (construction and rehab, highest risk category). LTV ratios for conventional CRE loans typically run 65%–80%, compared to 80%–100% for residential. A recommended reference for anyone new to commercial financing.
Based on the work of John Mullins, associate professor at London Business School and author of The Customer-Funded Business, this resource presents one of the most powerful and underutilized ideas in entrepreneurial finance: use your customers' cash to fund growth instead of investors' cash. Mullins identified five models that fast-growing companies have used historically – and can use today – to build and scale without giving up equity or taking on debt. The core insight: the vast majority of companies on the INC. 5000 fastest-growing list never raised external equity. The five models are: (1) Pay-in-Advance – customers pay before the product exists (Dell computers, Amazon marketplace sellers); (2) Subscription – recurring upfront payments fund operations and growth; (3) Scarcity – limited availability creates urgency and advance payment; (4) Service-to-Product – profitable services fund product development (how Microsoft built MS-DOS); (5) Matchmaker – connect buyers and sellers and take a fee without owning inventory. Prosper Systems has added additional non-equity strategies specific to CRE and business acquisition contexts. This is essential reading for any founder or operator who wants to grow without dilution.
A Prosper Systems proprietary reference summarizing the lending preferences, typical loan size ranges, property types, and geographic focus of the debt capital sources covered in this document. Knowing a lender's sweet spot before you approach them is one of the most time-saving steps in the capital-raising process – submitting a $1.5M request to a lender whose minimum is $5M, or a hospitality deal to a lender who only does multifamily, wastes everyone's time and can damage your credibility. This reference covers conventional banks, community banks, credit unions, non-bank lenders, SBA preferred lenders, CMBS conduit lenders, life insurance companies, hard money and bridge lenders, and agency programs. Use it in conjunction with the Sources and Specialties sections of this document to identify the 2–3 best-fit capital sources for any specific deal before making your first call.
The equity-side companion to the Debt-Lender Ranges reference above, this Prosper Systems document summarizes the investment preferences, check sizes, stage focus, and sector interests of equity capital sources – including angel investors, family offices, venture capital funds, corporate strategic investors, crowdfunding platforms, and private equity. Equity investors are far more segmented by stage, sector, and geography than debt lenders, making it critical to target only those whose investment thesis actually matches your deal. A pre-seed proptech startup and a stabilized multifamily syndication need completely different investor conversations. Use this reference to shortlist the right equity partners before beginning outreach, and pair it with the Sources section of this document for the full capital-stack picture.
