Why sellers ask for it
A commercial seller usually takes the property off the market while a buyer does due diligence, often for 30 to 60 days. If that buyer cannot get a loan, the seller has lost months. A prequalification letter tells the seller and the listing broker that a lender has looked at your finances and expects to be able to lend on a property like this one.
It matters most when:
- The property is priced well and other buyers are interested
- The seller is choosing between offers with similar prices
- You want a short financing deadline in your contract
- You are asking to tour a building that is not publicly listed
Prequalification, preapproval and proof of funds
Prequalification letter
A lender has reviewed your basic financial information and says it expects to lend up to a certain amount for this kind of property. It is not a commitment, but it is what most sellers want to see with an offer.
- Turnaround a few days
- Cost usually free
Preapproval or term sheet
The lender has reviewed your tax returns and financial statements and issued proposed terms: amount, rate range, down payment and conditions. This carries more weight because underwriting has started.
- Turnaround 1 to 2 weeks
- Often needs 3 years of returns
Proof of funds
A recent bank or brokerage statement, or a letter from your bank, showing you have the cash to close. Cash buyers send this instead of a lender letter. Financed buyers often send it too, to show the down payment.
- Statement within 30 days
- Black out account numbers
What a lender needs to write one
- Two to three years of personal tax returns
- Two to three years of business tax returns, if you will occupy the building
- A current personal financial statement
- Year to date business financials
- The property address, price and how you plan to use it
- How much you plan to put down and where it is coming from
If you are leasing, not buying
Tenants do not need a lender letter. Landlords ask for business financial statements, tax returns, and sometimes a personal guarantee instead. If you plan to finance your build out with an SBA loan, a letter from your lender helps the landlord trust your timeline.
Get the letter before you start touring. It takes days to get, and good buildings do not wait.
Common follow up questions
Does a prequalification letter cost anything?
Usually not. Most commercial and SBA lenders issue prequalification letters for free because it starts a relationship. A full appraisal and underwriting come later and do cost money.
Does getting prequalified hurt my credit?
Many lenders can prequalify you with a soft credit check that does not affect your score. Ask the lender which kind of check they run before you send your information.
Should I send my financial statements to the seller?
No. Send the lender letter or a redacted proof of funds through your broker. Keep your tax returns and full statements between you and your lender.
This page is general information, not lending, legal or tax advice. Programs, limits and terms change, and every situation is different. Talk with your lender, attorney and CPA before you decide.