Any experienced Commercial Bankers/Commercial Borrowers - Life Insurance?

[Shane H.]

Feel free to move this topic to another forum if it fits best there.  However given the correlation to commercial RE thought here was best.

I've noticed on some of the financial products I've been pursuing/commercial loan apps, and personal financial statements, all of them have asked about life insurance.

For any in the commercial lending realm or those who have filled out more commercial lending applications/financial statements than they care to remember, do you feel or know if the life insurance section carries much weight on  your application/ability to obtain the loan?

I'm presently employed in a W2 job and carry the max insurance I have the ability to purchase, however since the birth of my son and analyzing our financial future a bit more have figured this is something I need to focus on at the moment.  

Was meeting with a financial advisor today as I want to move money out of my employers 401k (I have a unique plan in which the employer puts lots of money in if we have good years and can move lots of it out into what/where I choose) into something a bit more diversified than what is offered and naturally the topic of life ins was brought up.  The wealth advisor seemed to have a good point that banks like to see the value of the life insurance policy/type of policy as assignable so if you pass while covered, it can meet your obligations, then the remaining is left for family/spouse children.

Any truth in this, and could this potentially sway commercial lending apps one way or the other?

Trying to get a good idea on what type of products (more than likely term) and how much to purchase.  

[Joel Owens]

For commercial loans liquidity and total net worth is looked at along with global cash flow.

In liquidity usually counted is the cash value of the life insurance policy. That along with 401 k's, IRA's, savings, checking, stocks are looked at as liquid assets because you can pull from them easily.

Equity from properties is counted toward total net worth but lenders do not put as much weight on it. The reason is you could say your have 3 properties worth 500k each. 250k is owed on each of them. So you are showing 750k equity. Based on 1.5 million you could theoretically at 75% LTV pull out 1,125,000 max. 1,125,000 - existing 750 = 375,000 to be accessed.

Now say that appraisals come in low at 425k each instead of 500k. You now have a value of 1,275,000 X .75 = 956,250 - 750,000 existing loan balances = 206,250 can be accessed instead of 375,000.

This is why lenders do not put as much weight as the equity analysis stated by borrowers is off. Sometimes they undervalue the worth of the properties but more times than not it is an overvalue.