Refinancing a commercial property is an important step in the process of achieving goals for many small business owners and commercial property investors. Refinancing a property can help a borrower pay off an existing mortgage, free up cash for inventory or property improvements, or consolidate their business debts into a simpler monthly payment.
As a commercial mortgage broker, your job is to help these borrowers navigate the commercial lending process and secure the financing they need to accomplish their goals. Here’s how you can help to refinance a commercial property:
Talk to your borrower.
Before you do anything else, you need to have a discussion with your borrower or borrowers about their current financial situation and what they’re looking to accomplish with a mortgage for their small business. Take the time to understand their credit history, their business, and the commercial property they’re planning to pledge as collateral.
Here are some questions you’ll need to ask in order to determine whether you can help this borrower obtain a small-balance commercial mortgage:
How is your credit?
Your borrower’s credit scores and overall credit history are going be important to any commercial lender considering their mortgage request. As a broker, you should discuss credit with your borrower to determine what type of lender will be able to offer them financing. Be ready to have a discussion with the lender about any past financial issues your borrower has faced.
What’s your property like?
Your borrower’s collateral will be an important factor for a lender evaluating their commercial mortgage request, so it’s important to find out as much as you can about it. To get started, find out where the property is located, how large it is, what type of building it is, and what kind of business operates from it. You should also find out if the property is owner-occupied or if it’s an investment property. This is all information that a lender will need when considering whether or not they can offer your borrower a commercial mortgage.
What are your plans for the money?
There are plenty of reasons why a small business owner or commercial property investor would like to refinance their building. Whether they want to pay off an existing mortgage, invest in improvements to the building or take care of some tax liens or other business-related debts, your lender needs to know in order to make sure that the deal makes sense. So, be sure to ask your borrower about the use of funds and to explain it in detail to your lender.
How much money do you need?
The amount of money that your borrower needs is another important piece of information for lenders. It can be difficult to get a small-balance commercial mortgage from banks and other traditional lenders, so it’s crucial for brokers to develop relationships with non-conforming commercial mortgage lenders so that they can provide borrowers with a number of financing options.
Once you’ve asked these questions and received satisfactory answers, here’s how you’ll proceed:
Select the right lender for your borrower.
Once you’ve got a solid understanding of your borrower, their business and what they’re looking to accomplish, you need to choose the best lender for their situation. While some of the borrowers will work with qualify for bank loans, it’s likely that many small business owners will require alternative financing. If you’ve got a borrower with past credit issues, IRS debt, or simply need to close faster than a bank is able to, a small-balance commercial mortgage lender will probably be the best fit.
Collect and submit the documents the lender requires.
After you’ve determined which lender will be right for a particular borrower, you need to begin collecting the necessary paperwork and sending it over. Most lenders will need (at least) a completed application, a recent credit report with scores and tradelines, and a summary of the deal to review the commercial mortgage request. Exterior and interior photos of the property are also very helpful. Every lender will have different requirements, so talk to the lender about theirs before you submit the deal. The more complete the initial submission is, the easier the rest of the process will be for you and your borrower.
Work closely with the lender to resolve any issues.
It’s not uncommon for a couple of small obstacles to pop up when trying to close a commercial mortgage, especially for non-bankable borrowers. As a broker, all you need to do is provide any necessary information to help the lender resolve these issues as quickly as possible. Answer their questions in a timely manner and facilitate communication between the borrower and the lender. If you do this, the process should go smoothly even if you’re presented with a few issues.
Whether your borrower is looking to secure financing for various projects or goals, or to pay off or consolidate debt, refinancing their commercial property is a great option. Make sure you have an in-depth discussion with the borrower to get a sense of their financial situation and what they want to accomplish. Ask all the necessary questions so that you can determine if you can help them and how. Then, it’s down to choosing the right lender, collecting and submitting the necessary information your lender needs to review the deal, and working with the lender and your borrower to make sure the deal closes as quickly and smoothly as possible.