Question

When assessing a commercial real estate loan opportunity, which information should be considered during your initial assessment of the borrower and guarantors? 1. Flood zone certification for the property 2. Insurance binder for the property 3. Three consecutive years of financial statements 4. Information regarding the borrower's legal structure 1 only 1 and 2 2 and 3 3 and 4 de

Answer 1

Answer is 3 and 4

Since we need to conduct the initial assessment of the borrowers and the guarantors, we need to first assess their financial capability and of repaying the loans. This can be done by skimming through the financial history of the borrowers and the guarantors. The legal structure of the borrower is important as we need to make a judgment as to what our recourse will be in case of a default. Does the borrowing entity has other assets and/or sources of income? etc.
At this initial stage, it is also likely that the borrowers have not identified the real estate asset which needs to be financed and hence we need to make an assessment about the suitability of the borrower.