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How to Handle a Commercial Borrower with Credit Problems

There are plenty of small business owners with less-than-stellar credit who still need to obtain financing. As a commercial mortgage broker, it’s your job to find these non-bankable borrowers a lender that understands their unique set of challenges and can fund their mortgage request. In order to accomplish this, you need to be prepared to prove that your borrower’s credit issues are in the past and that they can handle taking on new debt.

Here are the questions you need to ask when working on your borrower’s poor credit explanation:

What were the reasons for the borrower’s past credit issues?

If a commercial mortgage borrower has had credit problems in the past, it’s important for brokers to understand these issues before moving forward with the deal. If, for example, your borrower ran into trouble because of a dishonest bookkeeper and has taken steps to resolve the problem, there are small-balance commercial lenders who will be willing to work with them. However, issues like mortgage late payments are generally a big red flag for any type of commercial lender.

Does the explanation pattern the credit report?

Your commercial mortgage borrower’s credit explanation needs to coincide with the lines on their credit report in a way that makes sense to the lender. For example, if your borrower encountered expensive medical bills and struggled to pay them off, their explanation should match up with their credit history in terms of when the issue started and when recovery took place. As a broker, it’s your job to make sure that you understand how your borrower resolved their credit problems and explain it to the lender.

Have you had cash flow issues in the past?

If your borrower’s less-than-stellar credit stems from past cash flow problems, you need to explain to your lender why it happened and prove that the issue has been resolved. Provide all relevant financial documents to show that your borrower is back on the right track.

Many small business owners have faced credit issues in their careers, but still need funds in order to grow. It’s important for brokers to understand what led to these challenges and how they were resolved, and to find a lender to do the same. The more you know about your borrower’s credit history, the better your chances of finding a lender willing to see past their credit score and finance their commercial mortgage request.

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