Mortgage brokers in the business of alternative commercial financing have two main responsibilities. The first is finding the right lender for your borrower’s commercial mortgage scenario. The second is selling your client on the small business mortgage loan you’re able to obtain for them. It might seem daunting at first, particularly if you’re new to commercial mortgages for small businesses who can’t obtain bank loans. But if you know the appropriate steps to take, brokering small business mortgage loans is a simple way to drive new business and close more deals.
Finding the Right Commercial Mortgage Lender
The first thing you should concentrate on is figuring out which of the commercial mortgage lenders you do business with is the best fit for a particular borrower. This allows the lending process to move forward efficiently, and all it takes is getting the right information from your borrower.
- How much money does your borrower need? The first question you need to be asking your small business borrowers is how much money they require. Small-balance commercial lenders have different loan limits, so it’s important to take the time to understand the exact number your borrower is going to need in order to achieve their business goals.
- What type of property are they looking to finance? In order to get your borrower to the right lender, you also need to ask about what kind of property they want to finance. The collateral your borrower will use to secure the mortgage is an important piece of the puzzle. While it’s relatively simple to obtain a small business mortgage loan for multifamily or mixed-use properties, other property types, such as auto-repair, light industrial, or day care facilities can present a more of a challenge. Of course, you can obtain a small business mortgage loan for most property types, but some lenders simply won’t be interested in lending on buildings they deem to be riskier propositions.
On the subject of the property, additional information you should collect early in the process includes whether your borrower wants to refinance or purchase the property, where it’s located and how large it is, and whether it’s owner-occupied or an investment.
- What is your borrower looking to accomplish? Any lender will want to know how your borrower is planning to use a small business mortgage loan. Common reasons borrowers are seeking financing for a commercial property include improvements to the building, debt consolidation, paying off a mortgage or tax debt, purchasing a property, and working capital. Whatever the reason, make sure to include the purpose of the mortgage loan in an executive summary of the deal. Lenders all have their own way of evaluating requests for small business mortgage loans, and they need to make sure that a deal makes sense before they can offer financing.
- How is their financial situation? It’s not unusual for small business owners or commercial property investors to have encountered some financial hiccups. Different lenders have different appetites when it comes to risk, so it’s important to understand your client’s finances and credit history early on so that you can place them with a lender with whom they’ll qualify. Make sure that you get a copy of a recent credit report and any relevant financial documents (think profit and loss statements or income and expense reports) so that you can review those to determine which of your lenders might be able to provide a small business mortgage loan.
Selling the Mortgage to Your Small Business Borrower
Perhaps the biggest challenge for brokers working with non-bankable borrowers is selling them on the small business mortgage loan for which they can qualify. While it’s not always easy, you need to walk your borrower through a lender’s process and their reasoning so that they can fully understand why a particular mortgage offer is going to be the best fit for them.
- Manage their expectations. A lot of borrowers begin the process of obtaining a small business mortgage loan expecting a bank rate and terms and feel blindsided by the higher rates and less favorable terms of alternative commercial lenders when they don’t qualify for a bank loan. As a mortgage broker, it’s your job to explain plainly to certain borrowers that bank financing won’t be a possibility, but that there are other options. Assure them that you will find them the best possibly small business mortgage loan for which they can qualify.
- Focus on what they want to achieve. A great strategy for brokers working with borrowers who can’t get a small business mortgage loan from a bank is to emphasize how alternative financing will allow them to accomplish their goals. While this type of financing is likely not your borrower’s first choice, keeping them focused on the end result, will make the fact that they need to go with an alternative commercial lender an easier pill to swallow.
- Highlight the strengths of the deal. We all know bank rates and terms are the best, but small business mortgage loans from alternative lenders have their own strengths. Maybe the borrower will be closing much more quickly than they would have with a bank. Perhaps the lender found the borrower a great deal on a commercial appraisal. Maybe the alternative lender can offer fixed and fully amortizing terms for a longer time period than the bank. Whatever the strengths are, make sure you highlight them.