Commercial Loan Due Diligence Checklist

A commercial loan due diligence checklist is the pile of third-party reports, lease files, and entity documents a business-purpose close actually waits on. The term sheet is not the bottleneck. The Phase I that was ordered late, the missing amendment to a grocery lease, or an operating agreement that does not authorize the manager to borrow is the bottleneck.

This list is educational and investment-property focused. It is not a construction, land, church, or spec-development checklist. Order items in parallel on day one of a serious contract.

HUD’s multifamily process is a heavy version of the same idea: a full underwriting package before a commitment (HUD multifamily programs). Small-balance private files are lighter. They are not empty.

Commercial Loan Due Diligence Checklist: Third-Party Reports

Order these as soon as the contract is live and the financing path is real. They have calendars.

Appraisal. Income approach will dominate. Give the appraiser the same rent roll and T12 you gave the financing review, not a prettier set. See commercial property appraisal.

Phase I environmental site assessment. Standard practice follows ASTM E1527 (current version as of your contract). The EPA’s brownfields pages explain why all appropriate inquiries exist: a buyer who skips the inquiry can inherit cleanup liability theories they did not price. A recognized environmental condition does not always kill a loan; an ignored tank farm does. This site does not pitch problem-property financing. If the Phase I points to a Phase II, stop and re-underwrite the bid. Environmental Phase I is the deeper article.

Property condition / PCA or PCNA. Roofs, HVAC, parking, life safety. This drives repair escrows and replacement reserves. Critical life-safety items typically have to be done before or at closing; cosmetic items can be escrowed.

Survey. ALTA/NSPS if the program or title company requires it. Encroachments and easements found here are cheaper than after you own them.

Seismic, zoning, or specialty reports when the asset type needs them (for example, a seismic PML on a west-coast mid-rise—still a national file, not a state-targeted pitch). Do not order a hotel brand study for a fourplex.

Insurance binder. A quote is not a binder. The named insured must match the borrowing entity. Loss payee language must match the closing instructions.

Lease Files and Income Support

Financing reviews underwrite leases, not stories.

• Current rent roll (unit or suite, tenant, SF or beds, rent, start/end, options, deposits, concessions).
• Every lease, amendment, commencement letter, and SNDA/estoppel the program wants. Order estoppels the day the form is available; tenants sit on them.
• T12 and last two year-end operating statements. T12 underwriting and NOI calculation explain how those get restated.
• Arrears report. A pretty rent roll with 90-day delinquencies is not a pretty file.
• Ground lease, REA, or parking license if any part of the operation lives off the fee simple.
• For NNN retail or industrial: CAM reconciliations and a list of recoverable versus landlord-absorbed expenses. See net-lease financing.

Residential 5+ unit files need unit-level ledgers, not a single “apartment income” line. 5–8 unit commercial or DSCR-style files typically expect an experienced operator; do not treat a first building as a paperwork-only project.

Entity, Authority, and Title

• Articles/certificate, operating agreement or bylaws, good standing, EIN letter.
• Authorizing resolution to borrow, mortgage, and guarantee.
• Organizational chart through any holding company. Single-purpose entity requirements are common on larger files.
• Guarantor personal financial statements, liquidity evidence, and schedule of real estate.
• Title commitment, exception documents, and a plan for each objection. Title insurance requirements is the companion.
• Existing loan documents if this is a refinance: prepay regime, assumption, and any lockout. Defeasance belongs on that list when the note is CMBS-style.

If the borrower will be an LLC, commercial loans for LLC borrowers lists the usual authority traps. Do not transfer title into a new LLC the week of closing without reading transfer rental property to an LLC.

The Items That Stall Funding (Even When Credit Is Fine)

1. Phase I ordered after the appraisal, with a 20-day turn.
2. Estoppels requested in week four of a 30-day close.
3. Operating agreement that names a different manager than the person signing.
4. Insurance that excludes the actual occupancy (vacant, renovation, or a use the seller hid).
5. Tax bills that do not match the underwritten amount, discovered at the title company.
6. A survey that shows a building over the lot line.
7. Repair list the seller will not escrow and the buyer cannot fund.
8. Guarantor liquidity that was “in the market” and is not at closing.

Build a shared tracker: item, vendor, order date, due date, who chases. Commercial closings slip on coordination, not on mystery.

A One-Page Order-of-Operations

Day 1: Insurance quote, Phase I, appraisal engagement, title order, entity good standing.
Day 2–3: Complete rent-roll and T12 package to appraiser and reviewer.
Week 1: Survey, PCA, estoppel forms out.
Week 2: Exception review, repair walk, updated insurance.
Week 3+: Clear title, lock only when the third parties cannot still blow up proceeds. See commercial rate lock.

Have a commercial or mixed-use investment property in mind? Start with a confidential inquiry or call (907) 841-1600.

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Frequently Asked Questions

Do I need a Phase I on a small mixed-use walk-up?

Many commercial programs want one whenever the use or age raises environmental questions (old dry cleaner, former gas station next door, heating-oil history). Some very small files waive it and still ask questions. Budget the study unless you have written confirmation it is not required. Skipping it to save a week is how you buy a tank.

What is the difference between a PCA and an appraisal?

The appraisal values the property. The PCA describes physical condition and near-term capital needs. A loan can have a fine value and a brutal repair escrow. You need both stories.

Can I use the seller’s old Phase I?

Sometimes if it is recent, transferred, and the environmental professional will update it. An expired report with a different user name often has to be redone to meet “all appropriate inquiries” user requirements. Ask the consultant, not the seller’s broker.

Why do estoppels take so long?

Tenants have no urgency, and national tenants route forms through legal. Send the approved form early, track a named contact, and do not wait until the week of funding.

Is this checklist the same for a 1–4 unit DSCR loan?

No. A dedicated DSCR rental file is lighter: appraisal/1007, lease, insurance, entity docs if vested that way. The commercial stack above is for business-purpose commercial or larger multifamily. Do not order an ALTA survey on a suburban house unless someone required it.