Checklist Checklist

Category: Loans & Lending

  • #35 MERCHANT CASH ADVANCES Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

    1. A merchant cash advance is not economically identical to a conventional loan.
    2. The headline “factor rate” can obscure the true cost.
    3. Frequent repayment can strain cash flow.
    4. Daily or weekly payments can become painful during slow periods.
    5. A high approval rate does not mean affordability.
    6. The financing can be extremely expensive.
    7. Stacking multiple advances can create a debt spiral.
    8. A second advance can worsen the first one’s cash-flow problem.
    9. Personal guarantees may create personal exposure.
    10. Confession-of-judgment provisions or similar contractual provisions may deserve specialist review where applicable.
    11. ACH withdrawals can create operational problems when cash flow falls.
    12. Revenue-based repayment does not eliminate economic risk.
    13. A business can generate revenue while still losing money.
    14. Financing inventory does not guarantee inventory will sell.
    15. Financing marketing does not guarantee customer acquisition.
    16. The promised use of funds should be tested against actual return.
    17. Broker fees may add to cost.
    18. Renewal offers can encourage additional borrowing.
    19. “Fast funding” can discourage careful comparison.
    20. The repayment structure matters as much as the amount received.
    21. A lower payment can simply mean a longer repayment period.
    22. The true dollar cost should be calculated.
    23. Legal documents may contain provisions that are easy to overlook.
    24. Multiple simultaneous advances can consume future revenue before it arrives.
    25. If the business needs another advance to make the current advance’s payments, the financing strategy is already in trouble.

    B. PREMIUM BUYER CHECKLIST

    TRUE COST

    ☐ Amount received
    ☐ Total repayment
    ☐ Factor rate
    ☐ Broker fees
    ☐ Origination fees
    ☐ Other fees
    ☐ Expected repayment period

    Calculate:

    Total Repayment − Net Cash Received = Financing Cost

    Then determine the approximate effective economic cost over the expected repayment period.

    REPAYMENT

    ☐ Daily amount
    ☐ Weekly amount
    ☐ Percentage-of-revenue mechanism
    ☐ ACH requirements
    ☐ Estimated payoff date
    ☐ Early payoff terms

    STACKING

    ☐ Existing advances
    ☐ Existing credit lines
    ☐ Credit cards
    ☐ Equipment debt
    ☐ Other short-term obligations

    CONTRACT

    ☐ Personal guarantee
    ☐ Default provisions
    ☐ Collateral
    ☐ Arbitration
    ☐ Legal remedies
    ☐ Payment authorization
    ☐ Broker compensation

    CASH-FLOW STRESS TEST

    ☐ Revenue −20%
    ☐ Revenue −40%
    ☐ One slow month
    ☐ Two slow months
    ☐ Major customer loss

    FINAL RULE

    Never evaluate the advance based solely on how quickly you receive the money.

    FINAL QUESTION

    How much of my future revenue am I giving away to receive today’s cash?

  • #34 BUSINESS LINES OF CREDIT Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

    1. A line of credit is not free cash.
    2. Available credit can disappear if the lender changes terms.
    3. Variable rates can increase payments.
    4. Interest may accrue on outstanding balances.
    5. Annual renewal requirements can create risk.
    6. Borrowing capacity can depend on financial performance.
    7. Personal guarantees may apply.
    8. Collateral may be required.
    9. Covenants can restrict business decisions.
    10. Lenders may require financial reporting.
    11. Fees can include unused-line or annual charges.
    12. Late payments can trigger penalties.
    13. Default can accelerate repayment.
    14. A line used for permanent expenses can become a permanent debt problem.
    15. Borrowing to cover recurring operating losses is a warning sign.
    16. Seasonal businesses may need more capacity than the line provides.
    17. Customer concentration can suddenly reduce borrowing capacity.
    18. Receivables may not all qualify for borrowing.
    19. Inventory may have limited borrowing value.
    20. The stated credit limit may not equal practical availability.
    21. Drawing the full line can leave no emergency capacity.
    22. Refinancing risk exists if the facility is not renewed.
    23. Interest expense can quietly erode margins.
    24. A line should support a clear working-capital cycle.
    25. The critical question is “What specifically will this borrowed money accomplish?”

    B. PREMIUM BUYER CHECKLIST

    ☐ Credit limit
    ☐ Interest rate
    ☐ Fixed/variable
    ☐ Draw fees
    ☐ Annual fees
    ☐ Unused-line fees
    ☐ Renewal date
    ☐ Maturity
    ☐ Collateral
    ☐ Guarantee
    ☐ Covenants
    ☐ Reporting requirements

    PURPOSE

    ☐ Inventory
    ☐ Receivables
    ☐ Seasonal cash flow
    ☐ Short-term opportunity
    ☐ Emergency liquidity

    Avoid using a revolving facility to permanently fund operating losses.

    BORROWING-CAPACITY TEST

    ☐ Eligible receivables calculated
    ☐ Eligible inventory calculated
    ☐ Advance rates understood
    ☐ Concentration limits understood
    ☐ Borrowing-base formula understood

    LIQUIDITY TEST

    Model:

    ☐ Normal month
    ☐ Slow month
    ☐ Worst month
    ☐ Major customer delay
    ☐ Unexpected expense

    FINAL QUESTION

    If the lender froze the line tomorrow, how long could the business operate?

  • #32 SBA LOANS Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

    1. “SBA-backed” does not mean the government is simply giving you the money.
    2. You work directly with a lender for an SBA loan.
    3. The lender still evaluates your business and repayment ability.
    4. Eligibility requirements matter.
    5. Loan proceeds may have permitted-use restrictions.
    6. Repayment comes from the business and/or other sources according to the loan structure.
    7. Variable-rate loans can produce changing payments.
    8. Fees can materially affect total borrowing cost.
    9. Collateral requirements may apply depending on the loan.
    10. Personal guarantees may create personal exposure.
    11. Business projections are not guaranteed results.
    12. Acquisition financing requires careful valuation.
    13. Buying a business at an inflated price can create a debt problem.
    14. Working-capital estimates can be wrong.
    15. Seasonal businesses may require more liquidity than expected.
    16. Existing debt can reduce borrowing capacity.
    17. Seller financing can change the transaction economics.
    18. Lease obligations matter.
    19. Tax obligations matter.
    20. The business must generate enough cash flow to service debt.
    21. A loan can solve a capital problem while creating a cash-flow problem.
    22. Refinancing should not be assumed.
    23. Default consequences must be understood before signing.
    24. Loan documents—not sales presentations—control the obligation.
    25. “SBA loan” is not a substitute for underwriting the business itself.

    The SBA states that most 7(a) term loans are repaid through monthly principal and interest payments from business cash flow, with variable-rate payments potentially changing when the rate changes.

    B. PREMIUM BUYER CHECKLIST

    BUSINESS

    ☐ Legal entity
    ☐ Ownership
    ☐ Years operating
    ☐ Revenue history
    ☐ Profitability
    ☐ Existing debt
    ☐ Tax obligations
    ☐ Customer concentration
    ☐ Supplier concentration

    PURPOSE

    ☐ Acquisition
    ☐ Working capital
    ☐ Equipment
    ☐ Real estate
    ☐ Expansion
    ☐ Refinancing
    ☐ Other permitted purpose

    LOAN

    ☐ Amount
    ☐ Rate
    ☐ Fixed/variable
    ☐ Term
    ☐ Payment
    ☐ Fees
    ☐ Collateral
    ☐ Guarantees
    ☐ Covenants
    ☐ Default provisions

    CASH-FLOW TEST

    ☐ Current cash flow calculated
    ☐ Debt service calculated
    ☐ Existing obligations included
    ☐ Owner compensation included
    ☐ Taxes included
    ☐ Working-capital needs included
    ☐ Downside case calculated

    IF BUYING A BUSINESS

    ☐ Tax returns reviewed
    ☐ Financial statements reviewed
    ☐ Bank statements reviewed
    ☐ Customer concentration
    ☐ Owner add-backs verified
    ☐ Seller claims independently tested
    ☐ Assets verified
    ☐ Liabilities verified
    ☐ Contracts reviewed
    ☐ Litigation reviewed

    FINAL QUESTION

    If the business produces substantially less cash flow than the seller’s projections, can the debt still be serviced?

  • #26 INVESTMENT PROPERTY LOANS Buyer Checklist You Need To Know Before You Spend Your Money. 60 Buyer-Beware Intelligence Points.

    The property must support the debt—not merely look attractive.
    2. Appreciation should not be your only repayment strategy.
    3. Rental income projections can be overly optimistic.
    4. Vacancy reduces actual cash flow.
    5. Repairs can consume expected profit.
    6. Property taxes can rise.
    7. Insurance can rise dramatically.
    8. Financing terms can change your entire return.
    9. Interest-only payments can hide the eventual principal problem.
    10. Balloon maturities create refinancing risk.
    11. Debt-service calculations depend on assumptions.
    12. Lenders may use their own income calculations.
    13. Appraised value isn’t necessarily market sale value.
    14. A high projected ROI may depend on leverage.
    15. Leverage magnifies losses as well as gains.
    16. Property management costs are frequently underestimated.
    17. Maintenance reserves matter.
    18. Capital expenditures are different from routine repairs.
    19. Tenant turnover creates real costs.
    20. Bad tenants can create legal and financial exposure.
    21. A property can have positive rent but negative cash flow.
    22. Refinancing may become harder when rates rise.
    23. Selling costs can erase apparent equity gains.
    24. Tax considerations can materially change the economics.
    25. A property that “pays for itself” on paper may not do so in reality.

    B. PREMIUM BUYER CHECKLIST

    PROPERTY

    ☐ Purchase price
    ☐ Independent valuation
    ☐ Property condition
    ☐ Age of major systems
    ☐ Roof
    ☐ HVAC
    ☐ Plumbing
    ☐ Electrical
    ☐ Structural condition
    ☐ Environmental issues

    INCOME

    ☐ Current rent roll
    ☐ Actual collections
    ☐ Vacancy
    ☐ Delinquencies
    ☐ Lease terms
    ☐ Tenant concentration
    ☐ Market rents independently checked

    EXPENSES

    ☐ Property taxes
    ☐ Insurance
    ☐ Management
    ☐ Repairs
    ☐ Maintenance
    ☐ Utilities
    ☐ HOA/association fees
    ☐ Capital expenditures
    ☐ Legal/accounting
    ☐ Advertising/leasing

    FINANCING

    ☐ Rate
    ☐ Term
    ☐ Amortization
    ☐ Interest-only period
    ☐ Balloon
    ☐ Fees
    ☐ Prepayment
    ☐ DSCR requirements
    ☐ Reserves
    ☐ Guarantees

    RETURN ANALYSIS

    Calculate:

    Gross Income

    minus

    Vacancy + Operating Expenses + Debt Service + Capital Reserves

    =

    Actual Cash Flow

    Then test:

    ☐ 10% vacancy
    ☐ 20% vacancy
    ☐ 10% lower rent
    ☐ 15% higher expenses
    ☐ Major repair
    ☐ Higher refinancing rate
    ☐ 10% lower property value

    FINAL DECISION

    Do not rely on appreciation to rescue weak operating economics.

    FINAL QUESTION:

    “Would I still want this property if its value stayed exactly the same for ten years?”

  • #25 LAND LOANS Buyer Checklist You Need To Know Before You Spend Your Money. 70 Buyer-Beware Intelligence Points.

    1. Raw land may produce no income while you own it.
    2. The purchase price does not prove the land’s true value.
    3. Financing may require substantial equity.
    4. Land loans can have shorter terms than conventional mortgages.
    5. Interest costs can accumulate while the land produces nothing.
    6. Zoning can limit what you can actually build.
    7. “Potential development” is not the same as approved development.
    8. Entitlements can take longer than expected.
    9. Rezoning is never something to casually assume.
    10. Access can be a major problem.
    11. Easements can restrict development.
    12. Utility availability must be verified.
    13. Water/sewer assumptions can be wrong.
    14. Environmental problems can destroy feasibility.
    15. Flood/drainage issues can increase development costs.
    16. Soil conditions can dramatically affect construction.
    17. Survey problems can change usable acreage.
    18. Property taxes continue while you wait.
    19. Insurance and maintenance costs may continue without income.
    20. A future construction loan may never materialize.
    21. A future buyer may not value the property as you expect.
    22. Market conditions can change during the entitlement period.
    23. Personal guarantees may expose other assets.
    24. Default can result in losing the land and invested equity.
    25. The critical question is whether the land works today, not merely what it might become someday.

    Land loans can be particularly risky because undeveloped land generally lacks operating cash flow and repayment may depend on development, sale or another financing event.

    B. PREMIUM BUYER CHECKLIST

    MISSION

    Determine whether the land is financially viable before relying on future development potential.

    PROPERTY

    ☐ Parcel identified
    ☐ Legal description verified
    ☐ Survey obtained
    ☐ Title reviewed
    ☐ Liens identified
    ☐ Easements identified
    ☐ Access verified
    ☐ Boundaries confirmed

    DEVELOPMENT POTENTIAL

    ☐ Zoning verified
    ☐ Permitted use confirmed
    ☐ Density confirmed
    ☐ Setbacks confirmed
    ☐ Development restrictions identified
    ☐ Entitlement status documented
    ☐ Permit requirements identified

    INFRASTRUCTURE

    ☐ Road access
    ☐ Electricity
    ☐ Water
    ☐ Sewer/septic feasibility
    ☐ Drainage
    ☐ Telecommunications
    ☐ Utility connection costs

    PHYSICAL DUE DILIGENCE

    ☐ Environmental issues investigated
    ☐ Flood risk investigated
    ☐ Soil/geotechnical conditions investigated
    ☐ Topography reviewed
    ☐ Wetlands/environmental restrictions considered where applicable

    FINANCING

    ☐ Loan amount
    ☐ Interest rate
    ☐ Fees
    ☐ Term
    ☐ Amortization/payment structure
    ☐ Balloon/maturity obligation
    ☐ Extension options
    ☐ Prepayment provisions
    ☐ Default provisions
    ☐ Guarantees

    CARRYING COST

    Calculate:

    Interest + Taxes + Insurance + Maintenance + Professional Fees + Development Costs

    Then calculate the total cost for:

    ☐ 12 months
    ☐ 24 months
    ☐ 36 months
    ☐ 48 months

    EXIT TEST

    ☐ Sale value tested
    ☐ Development value tested
    ☐ Construction financing availability investigated
    ☐ Alternative exit identified

    FINAL QUESTION

    If I cannot develop this property for three years, can I comfortably afford to own it?

  • #24 Construction Loans Buyer Checklist You Need To Know Before You Spend Your Money. 70 Buyer-Beware Intelligence Points.

    A. 25 BUYER BEWARE WARNINGS

    1. A loan commitment is not necessarily the same as cash immediately available.
    2. LTC and LTV measure different things; don’t confuse them.
    3. The lender may calculate eligible project costs differently from your budget.
    4. Some soft costs may be excluded or limited.
    5. Your land value may not count as equity dollar-for-dollar.
    6. Construction funds are commonly released through controlled draws.
    7. Draw delays can create cash-flow problems even when the project is profitable on paper.
    8. Interest reserves may be inadequate if construction runs late.
    9. A contingency is not permission to underestimate the project.
    10. Change orders can destroy a previously workable budget.
    11. A low contractor bid may omit important scope.
    12. Contractor experience matters as much as the headline price.
    13. Permits and approvals can become financing bottlenecks.
    14. Utility, drainage, access and site conditions can create major unexpected costs.
    15. Construction schedules are estimates, not guarantees.
    16. Your loan may mature before the project is ready for sale or refinancing.
    17. A future permanent loan is not automatically guaranteed.
    18. A future sale is not automatically guaranteed.
    19. The completed property may appraise below your projection.
    20. Cost overruns may become your responsibility.
    21. Personal guarantees can expose assets outside the project.
    22. Default provisions can become extremely expensive.
    23. Extension options may involve additional fees or stricter conditions.
    24. A profitable project can still fail because of a liquidity shortage.
    25. The most important question is not “Can I get the loan?” but “Can I finish the project if things go wrong?”

    B. PREMIUM CONSUMER BUYER CHECKLIST

    MISSION

    Determine whether the proposed financing can realistically carry the project from land/acquisition → construction → completion → sale/refinance under both normal and adverse conditions.

    1. PROJECT DEFINITION

    ☐ Property and parcel identified
    ☐ Intended use documented
    ☐ Plans/specifications available
    ☐ Construction scope defined
    ☐ Current land/acquisition basis documented
    ☐ Existing liens identified

    2. TOTAL PROJECT COST

    ☐ Land/acquisition cost
    ☐ Hard construction costs
    ☐ Architecture/engineering
    ☐ Permits
    ☐ Surveys
    ☐ Legal/title/closing costs
    ☐ Insurance
    ☐ Taxes
    ☐ Financing costs
    ☐ Interest/carrying costs
    ☐ Marketing/sales costs
    ☐ Contingency
    ☐ All known costs reconciled to one master budget

    A construction financing package should reconcile plans, budget, schedule, permits, contractor, equity and exit rather than treating the loan application as an isolated document.

    3. LOAN STRUCTURE

    ☐ Total commitment identified
    ☐ Initial advance identified
    ☐ Future draw schedule documented
    ☐ Interest rate understood
    ☐ Interest calculation method understood
    ☐ Fees itemized
    ☐ Extension fees identified
    ☐ Default rate identified
    ☐ Maturity date identified
    ☐ Prepayment terms reviewed
    ☐ Guarantee requirements understood

    4. DRAW SYSTEM

    ☐ Draw milestones documented
    ☐ Inspection requirements understood
    ☐ Required documentation identified
    ☐ Minimum draw amounts known
    ☐ Draw processing time established
    ☐ Borrower-funded work between draws modeled
    ☐ Disputed draw procedure understood

    5. BUILDER/CONTRACTOR

    ☐ Relevant experience verified
    ☐ References checked
    ☐ Insurance verified
    ☐ Contract reviewed
    ☐ Scope reconciled with budget
    ☐ Change-order procedure understood
    ☐ Contractor financial capacity considered

    6. EXIT

    ☐ Sale exit documented
    ☐ Refinance exit documented
    ☐ Permanent lender identified if applicable
    ☐ Estimated completed value independently tested
    ☐ Selling costs included
    ☐ Refinance assumptions stress-tested

    7. STRESS TEST

    Run the project again assuming:

    ☐ 10% construction-cost increase
    ☐ 20% construction-cost increase
    ☐ 3-month delay
    ☐ 6-month delay
    ☐ 12-month delay
    ☐ Lower completed valuation
    ☐ Lower sale price
    ☐ Higher permanent-financing rate
    ☐ Reduced refinance proceeds

    FINAL DECISION RULE

    DO NOT PROCEED if the project only works when the budget, schedule, valuation, sale price and refinance assumptions all go right.

    FINAL QUESTION

    If construction costs rise 20% and completion takes six months longer, where does the money come from?


  • #23 — BRIDGE LOANS Buyer Checklist You Need To Know Before You Spend Your Money. 50 Buyer-Beware Intelligence Points.

    • Bridge financing is temporary by design.
    • The exit strategy is therefore critical.
    • Refinancing is not guaranteed.
    • Property values can change before the bridge matures. Interest rates can change.
    • Loan extensions may be expensive.
    • Exit delays can dramatically increase total cost.
    • Fees can be overlooked when focusing on speed.
    • Appraisal assumptions may prove optimistic.
    • Construction delays can extend the loan.
    • Permitting delays can destroy the timeline.
    • A pending sale may fail. A buyer’s financing may collapse.
    • The lender may require substantial reserves.
    • Personal guarantees can increase exposure.
    • Cross-collateralization can create additional risk.
    • Prepayment provisions can matter.
    • Default provisions need careful review.
    • The cheapest bridge may not have the safest structure.
    • The borrower can become trapped between two financing events.
    • A delayed exit can turn a profitable project into an expensive one.
    • “Guaranteed refinance” should be treated cautiously.
    • The exit lender may apply different valuation standards.
    • You need a backup plan before the bridge begins.
    • A bridge loan should be evaluated primarily by the strength of the bridge’s exit.

    Premium Checklist

    Purpose

    ☐ I can explain precisely why bridge financing is necessary.

    ☐ I know what event will repay the loan.

    ☐ I have documented the expected repayment date.

    Cost

    ☐ Principal verified.

    ☐ Interest rate verified.

    ☐ Points verified.

    ☐ Origination fees verified.

    ☐ Legal/document fees verified.

    ☐ Extension fees verified.

    ☐ Exit costs verified.

    Timeline

    ☐ Best-case timeline calculated.

    ☐ Expected timeline calculated.

    ☐ Conservative timeline calculated.

    ☐ Delay scenario calculated.

    ☐ Monthly carrying cost calculated.

    Exit

    ☐ Sale strategy documented.

    ☐ Refinance strategy documented.

    ☐ Backup exit documented.

    ☐ Exit valuation independently tested.

    ☐ Required refinancing conditions identified.

    Stress Test

    ☐ Exit delayed 3 months.

    ☐ Exit delayed 6 months.

    ☐ Exit delayed 12 months.

    ☐ Property value falls 10%.

    ☐ Property value falls 20%.

    ☐ Refinancing becomes more expensive.

    Final Question

    “What happens if the event that is supposed to repay this loan doesn’t happen on schedule?”

    If you don’t have a financially survivable answer, the bridge may be carrying you toward a cliff rather than across one.

  • #22 — HARD MONEY LOANS Buyer Checklist You Need To Know Before You Spend Your Money. 50 Buyer-Beware Intelligence Points.

    • Fast funding can conceal expensive financing.
    • Interest rate alone doesn’t reveal total borrowing cost.
    • Points can materially increase effective cost.
    • Origination fees may be substantial.
    • Loan-to-value isn’t the only underwriting metric.
    • The lender may value the property differently from you.
    • A low purchase price doesn’t guarantee sufficient collateral.
    • Interest-only payments can hide the eventual payoff obligation.
    • Balloon payments can create refinancing risk.
    • Short maturities create exit pressure.
    • Extension options may cost extra.
    • Default provisions can be severe.
    • Prepayment penalties can reduce flexibility.
    • Personal guarantees can put unrelated assets at risk.
    • Cross-collateralization can expand the lender’s security.
    • Construction draws may have conditions.
    • Delays can increase carrying costs.
    • Renovation assumptions can be overly optimistic.
    • The lender’s appraisal isn’t necessarily your investment thesis.
    • A successful purchase can still become a failed loan exit.
    • Refinancing isn’t guaranteed.
    • Market changes can destroy the expected exit.
    • Legal/documentation fees can add significant cost.
    • “No income verification” doesn’t mean “no risk.”
    • The most important question is often how the loan gets paid off, not how it gets obtained.

    Premium Checklist

    MISSION: Determine whether the financing remains survivable if the investment takes longer, costs more, or sells for less than expected.

    Financing

    ☐ I know the exact principal.

    ☐ I know the stated interest rate.

    ☐ I know the effective cost including points and fees.

    ☐ I know the loan maturity.

    ☐ I know whether payments are interest-only.

    ☐ I know the balloon amount.

    Property

    ☐ I have independently evaluated the property.

    ☐ I have independently estimated after-repair value.

    ☐ I have created a conservative renovation budget.

    ☐ I have included contingency reserves.

    ☐ I have calculated carrying costs.

    Exit

    ☐ I have identified the planned exit strategy.

    ☐ I have identified a backup exit strategy.

    ☐ I know what happens if the property doesn’t sell on schedule.

    ☐ I know what happens if refinancing isn’t available.

    ☐ I have calculated the investment’s break-even sale price.

    Loan Contract

    ☐ I understand default provisions.

    ☐ I understand late fees.

    ☐ I understand extension costs.

    ☐ I understand prepayment penalties.

    ☐ I understand personal guarantees.

    ☐ I understand collateral requirements.

    ☐ I understand cross-default provisions.

    Stress Test

    Calculate:

    Maximum survivable delay = available cash reserve ÷ monthly carrying cost

    Then test:

    ☐ 3-month delay

    ☐ 6-month delay

    ☐ 12-month delay

    ☐ 20% renovation overrun

    ☐ 10% lower sale price

    ☐ Higher-than-expected refinancing cost

    Final Question

    “If my exit fails for 12 months, can I still survive this loan?”

    If the answer is no, the financing may be controlling the investment rather than supporting it.