In terms of the lending puzzle, your mortgage borrower’s plans for the money are an important piece, and it’s your job as the broker to provide it. Along with information about your borrower’s credit history, property, and business, your small-balance commercial lender will want to know the use of proceeds in order to understand the situation and underwrite the deal.
Here are some common reasons small business owners need small-balance commercial mortgages:
Pay off an existing mortgage or back taxes:
Many borrowers seeking a small-balance commercial mortgage are doing so because of a ballooning note. Their bank might be looking to get the property off the books, so often the borrower’s only option is an alternative lender. Additionally, borrowers looking to pay back taxes will be unable to obtain a loan from the bank, so a non-conforming lender is probably your best bet. When submitting the scenario, make sure to include payoff information from your borrower’s bank or the IRS.
Debt consolidation:
Another common reason that small business owners need a small-balance commercial loan is that they’re looking to consolidate their debt. For many, it’s simply easier to make one monthly payment than to have to worry about numerous bills. Credit card debt is generally the most common debt that borrowers want to consolidate, so make sure to provide your lender with credit card statements when you submit the deal.
Property improvements:
If your borrower is looking to make some improvements to their building, a small-balance commercial mortgage is a great solution. Whether your borrower is looking to repave their parking lot, take care of electrical work or plumbing, or redo their roof or siding, a small loan can help. If this is the reason your borrower needs financing, help your lender out and provide estimates for the work.
Working Capital:
Maybe you’re working with a borrower who just got a new contract and needs extra cash until they’re paid for the job. Perhaps your borrower needs a piece of equipment for their business or wants to take advantage of a great deal for their inventory. Small-balance commercial lenders can help by providing working capital so that your borrower can take advantage of business opportunities and keep their operations running smoothly.
Purchase:
One of the most common reasons borrowers need alternative commercial financing is that they’re looking to buy a small commercial property. Banks are less likely to fund these purchases, so a non-conforming lender is a good choice. An agreement of sale will be needed in many instances, but check with your lender first as it will depend on your borrower’s situation.
Whether your borrower is looking to pay off existing debt, obtain funds for improvements or working capital, or wants to purchase a commercial property, your lender needs to know. The sooner you get this information to your lender, the sooner the deal closes and you earn your commission.
