Some questions that I get asked from many mortgage brokers are:
“How do I find commercial mortgage and loan deals?”
“I have a client coming in this afternoon to talk about a commercial mortgage, what do I do?”
“Any commercial borrowers that are approvable are already going to their local bank, how can I get them?”
Let’s start with how to find commercial mortgage and loan deals that aren’t going to their local bank, then we’ll address the steps to take when you have a lead. I’ve been an underwriter for many years and I probably talk to 150 brokers a week regarding commercial mortgage scenarios. Here’s what I consider to be the top 5 ways to generate applications. All of these strategies are being used right now by the brokers who are closing deals.
- Spend a few dollars and place an ad in the local small-town newspaper. It is generally inexpensive and many business owners read it. In bold letters write, “We get commercial loans approved when the bank takes too long, or just says, no – Hard to prove income, tax debt, past credit issues, unique property? NO PROBLEM!”
- Go to an online phone directory and call 10 CPAs in your community. Ask them for a few minutes of their time over a cup of coffee. Let them know that you have some non-traditional sources of money for their clients. Don’t forget, the CPAs are doing their taxes, they know which clients cannot go to the local bank and will need other help. So a “stated-income” sales pitch will work great with the CPAs.
- Direct contact to business owners. Think small. If there is a street in your town with a lot of mixed-use and commercial properties, start there. Print up 50 flyers and walk down the street and hand them out. Believe me, business owners and commercial property owners are always thinking about money. AND THEY KEEP PRINTED MATERIAL THAT CONCERNS ACCESS TO CASH. Brokers are likely to get calls from property owners over a year after they dropped off a flyer. Or send a mailer. If you like, pick an industry to start with. Contact all auto-repair shops, bar/restaurants, motels, medical offices, daycares, grocery stores, etc. They’re all thinking about how good things would be if they could just: lower their monthly bills, buy a new piece of equipment, payoff their tax lien, acquire another property, etc.
- Go back through every 1003 you took over the past few years. Look at the schedule of real estate, is there commercial property? Did you get your deal done NIV, why? You may be amazed at what opportunity you have in your files right now.
- Contact the local bank. Either start with the loan officer that helps you with residential leads, or call your local branch manager and ask to speak with a commercial lender. Tell the banker that you are generating commercial deals and you need to understand what the bank is looking for in terms of an application. Then let them know that you may have sources for the deals that they are turning down. And you can also help those borrowers who have notes ballooning with the bank, but will not be re-written. Let the banker know that if they could refer their customer to you when they turn down the loan request, at least they can save the relationship they have with their depositor.
When you get a lead, although the application process can be more cumbersome (depending on the type of deal) the sales process isn’t that much different than a residential deal. Business owners, even more so than the average Joe, are worried about lowering their bills, paying off old debts, freeing up some cash for new investments, getting out of debt quicker, etc. Don’t be intimidated – ask questions, find out what their money needs are, find out why commercial loans will make sense. Is there a high rate first mortgage, is there a first mortgage that balloons, is there a lot of credit card debt, has the IRS caught up with them, real estate taxes due, or maybe there is some equipment they need to buy, or they just want out of a private mortgage. Don’t skip this step. It is important that you understand why commercial loans makes sense. If you don’t understand it, you’ll have a very hard time getting the commercial loan approved. You have to be able to explain to the lender how this commercial loan will help your borrower.
Then simply complete a 1003 using the commercial property as the subject. Many commercial lenders will get you a preliminary quote of terms with a 1003 and tri-merge credit report, especially when you’re talking to nationwide lenders. Every local bank has their unique application and documentation requirements. When you talk to the banker, ask them what form they want completed, and what paperwork they want you to submit with the file.
Lastly, what if the borrower asks about loan rates and terms? Be careful here. Just like in residential, the borrowers will always push you to quote loan rates early. And just like in residential it is important that you do not set unreasonable expectations.
Commercial mortgage and commercial loan rates are higher than residential. I’ve seen requests for 625 mid-score, stated income Bar owners requesting 75% LTV, expecting 4% fixed for 30 years. When the only lender interested is quoting 10.99% fixed for 15 years at 60% LTV, with up front points and pre-payment penalties, the commercial broker is going to have trouble selling this, because the expectations were set too high from the beginning.
The best and safest way to go is with the following, “I appreciate your concern about what commercial loan rates are available, and if we were talking about a home mortgage I could quote you a rate right now. However, with commercial property there is a very wide range of commercial loan programs with a wide range of loan rates. The final product will depend on many factors. Different lenders have different appetites for different scenarios. Now that I’ve learned a little bit about your business and your needs, let me go back to my office, start talking to some of my investors and banks; it won’t take me long to get you an idea of what’s available. My job is to find you the best deal available, and I promise I will do that.”