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Convincing a Commercial Lender to Look Past a Credit Score

Small business owners with less-than-stellar credit histories still need commercial mortgages. As a commercial broker, your job is to find a lender willing to work with these borrowers and to convince the lender that they can handle taking on new debt. Proving that your borrower’s credit issues are behind them means you need to provide the lender with the most complete and honest credit explanation possible.  Here’s what you should do:

  • Include the reason(s) for any past credit problems.

    If your borrower encountered credit issues in the past, a lender will want to know why. For example, if your borrower had some trouble paying medical bills in the past, but the issue is now resolved, there are small-balance commercial lenders who will be willing to work with them. However, mortgage lates are generally a big red flag for lenders, so it’s important for you to be as honest as possible when discussing issues of this nature. If there are a number of bad trade lines over several years on your borrower’s report, there will be a lot of explaining to do.

  • Keep in mind that the explanation should pattern the credit report.

    Your borrower’s credit explanation needs to coincide with their report and it needs to make sense. For example, if you have a borrower whose score suffered as the result of a dishonest bookkeeper, the storyline should match up with your borrower’s credit history with regards to when the problem was discovered and when recovery took place.

  • Discuss any past cash flow issues.

    If your borrowers credit problems stemmed from cash flow issues, you need to explain this to the lender and you need to be able to prove that the cash flow issues have been resolved. You need to provide information about what has improved in their business or rental stream.

  • Remind your borrower that honesty is the best policy.

    If the lender requires a borrower interview, be sure to review any credit issues with your borrower and encourage them to be honest and thorough when discussing these issues. If your borrower is upfront with the lender and provides a detailed explanation, they are much more likely to secure a commercial mortgage.

Many small business owners have faced credit issues in the past several years, but still need the funds to grow and rebuild their businesses.  In order to do so, it’s important for you to find a commercial lender willing to work with them and to provide this lender with as complete and honest a credit explanation as possible. The more you and your borrower explain to the lender regarding their credit situation, the more likely it is that the lender will be willing to look past their credit score.

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