Stage 4: Closing
Before a B&I loan can close, the lender needs independent verification of the collateral’s value and condition. That’s what third-party reports provide – objective assessments performed by companies that have no financial interest in the deal.
The lender fully manages this process. They maintain lists of vetted, approved vendors and select from project bids those vendors submit. The borrower isn’t involved in choosing the companies or coordinating the work, but they do pay for the reports through the deposits collected in the previous step.
One important note on timing: third-party reports can take several weeks to complete, but the closing process continues in parallel. The lender doesn’t wait for reports to come back before moving forward with the closing document request and other closing activities, so this step doesn’t add dead time to the overall timeline.
Common Third-Party Reports
The specific reports required depend on the deal, but most B&I loans involve some combination of the following:
• Business Valuation
An independent assessment of the business’s fair market value, typically required for business acquisition loans. The valuator examines the business’s financial history, market position, assets, and earning potential to arrive at a supportable value. This report helps the lender confirm that the purchase price is reasonable and that the business provides adequate support for the loan.
• Real Estate Appraisal
Required for any loan involving commercial real estate. A licensed appraiser inspects the property, evaluates its condition, analyzes comparable sales in the area, and produces a formal opinion of market value. The appraisal establishes the collateral value the lender uses to confirm the loan is adequately secured. Additionally, for real estate purchase loans, it serves to ensure that the price is within a reasonable range (similar to the role of business valuations in business acquisition loans). This is typically the most expensive third-party report, usually running $4,000 to $8,000 depending on the property’s size and complexity.
• Environmental Assessment
Evaluates whether the business site has any environmental contamination or hazard concerns. Usually required for any loan involving commercial real estate, and especially important for properties with chemical exposure risk – gas stations, dry cleaners, manufacturing facilities, or any site near such businesses.
Environmental assessments are conducted in two phases. Phase I is a records-based review, with the assessor examining state and county environmental records, historical property uses, and surrounding land uses to identify any red flags that suggest contamination. Phase I does not involve physical testing of the site. If the Phase I review identifies potential concerns, a Phase II assessment follows. Phase II involves visiting the site and collecting physical samples – boring into the soil and testing groundwater – to determine whether contamination actually exists, how severe it is, and what remediation may be required. A clean Phase I is the goal. A Phase II adds cost ($3,000–$4,500 or more) and time, but is sometimes unavoidable.
