There is plenty of information a small commercial mortgage lender takes into account when reviewing a mortgage request, but one of the most important questions you need to ask is why your borrower is requesting a loan. Small commercial mortgage lenders are going to be interested in how your borrower plans to use the funds. Here are the most common reasons your borrower will need a mortgage:
- Purchase: As a commercial mortgage broker, you’ll come across borrowers looking to purchase commercial properties to start new ventures or to expand existing businesses. You should ask your borrower how much experience they have in their chosen industry. You should also find out as much as you can about the property – how big it is, where it’s located, what your borrower will be paying for it, etc.
- Refinance: If your borrower is refinancing their property, it could be for one of a number of reasons.
- Paying off an existing loan: Many commercial borrowers refinance their properties in order to pay off an existing mortgage. Generally, these are bank loans which will balloon in the near future or short-term hard money loans.
- Debt consolidation: Some commercial borrowers are simply trying to pay down some debt when they refinance their properties. They might be looking to consolidate business credit card debt, pay off the IRS or pay down monthly expenses. It’s important to understand the nature of your borrower’s debt, as this will help your small commercial lender to provide them with the commercial mortgage they need.
- Property improvements: Sometimes, a commercial borrower refinances because they need to fix up their building. Whether it’s replacing the property’s windows, fixing the roof or a simple renovation, it’s important to talk to your borrower about the improvements. Make sure your borrower gets an estimate and a tentative schedule for the work.
- Working capital: Another reason your commercial borrower might be refinancing their property is that they need some working capital. Perhaps your borrower wants to take advantage of some great deals they found on inventory for their business, or they need money in the bank to cover bills while they wait for receivables. Find out the reason they need working capital and relay that information to the lender.
Remember, the reason your borrower needs a commercial mortgage is very important to a small commercial lender. If a loan request doesn’t make sense to your lender, or if they haven’t been provided with all the details, your borrower is going to have a hard time getting the financing they need. Asking your borrower up front about why they need financing will help your borrower to obtain the commercial mortgage they need smoothly and quickly.