One of the most important tasks for brokers looking to earn a living by closing commercial mortgages is to take the time to understand the motivations and obstacles of the borrowers seeking this type of financing.
If you’ve chosen the small-balance niche as an area of focus, these borrowers are often small business owners or commercial property investors who will likely need non-conforming mortgages. In order to get each borrower the mortgage they need, you first need to understand what they’re trying to accomplish and why they can’t obtain a bank loan.
Here are a few common motivations and obstacles faced by commercial borrowers when seeking financing:
Common Motivations of Commercial Borrowers Seeking Financing
They’re working to improve their credit.
It’s common for small business owners and commercial property investors to have less-than-stellar credit for a variety of reasons. In order to improve their credit scores and their business’s financial well-being, many commercial property owners will apply for a mortgage so that they establish a consistent payment history and get their scores back on the right track.
They’re paying off a mortgage, back taxes, or other debt.
Another common motivation for commercial borrowers is paying off business debt. Whether that’s a ballooning mortgage, a merchant cash advance, delinquent taxes, or credit card debt, a small-balance commercial mortgage is often the best solution for these borrowers. For some commercial property owners, it’s helpful to consolidate multiple forms of debt into one simple monthly payment.
They want to upgrade their property.
Roofs leak. Parking lots need to be repaved. Buildings need new coats of paint. HVAC systems need to be replaced. Across the country, business owners and property investors have all sorts of improvement projects they’re hoping to tackle. Often, they’re looking to refinance their building in order to foot the bill.
They’re looking to expand their business.
While refinances tend to be more common, as a mortgage broker, you’re going to see plenty of borrowers looking to purchase commercial properties. You’ll work with borrowers looking to buy new properties in order to expand their current business, as well as small business owners interested in purchasing the space they currently rent for their operations.
Common Obstacles of Commercial Borrowers Seeking Financing
They’ve got past credit or financial issues.
Banks are heavily regulated, so their credit and financial requirements for commercial borrowers will be tight. As we mentioned before, a lot of small business owners and property investors have run into credit or financial issues and are working to fix them. While the bank might sympathize with a borrower who fell behind on payments due to high medical bills or encountered business obstacles because of a shoddy bookkeeper, they’ll still be unable to help. Brokers need to develop relationships with non-conforming lenders who take the time to listen to and understand borrowers like these.
They’re behind on their taxes.
If your commercial borrower is seeking a mortgage in order to pay back taxes, they’re not going to be able to get a bank or SBA loan. In situations like these, you’ll need to place your borrower with a private lender. If their finances are in decent shape, a non-conforming lender with mid-range rates should be a good solution for them. However, if their finances are in rockier shape, you may need to look into hard money lenders.
They need a smaller loan size than their local bank will provide.
For your borrowers seeking truly small-balance commercial mortgages, banks and other traditional lenders might not be an option. Typically, what banks consider a small commercial loan is going to be well over the amount some small business owners and property investors really need. In these instances, having relationships with non-conforming lenders will benefit you and your borrowers.
The bank won’t lend on their property type.
If your borrower is looking to refinance or purchase a common type of commercial building, such as a multifamily or mixed-use property, you’re likely to have more options. However, for those seeking financing for more complex or unusual properties, borrowers will have fewer choices. If you’re a broker working with a borrower whose commercial property is unlikely to fit a bank’s guidelines, you’ll need to broaden your horizons and work with non-conforming commercial lenders.
Brokers operating in the commercial mortgage industry need to get to know small business owners and commercial property investors, their motivations to obtain financing, and the obstacles that they face when seeking mortgages. Putting in this effort with each of your clients will allow you to understand each commercial mortgage request and place it with the correct lender. Additionally, brokers should develop partnerships with a variety of commercial mortgage lenders to best serve their borrowers.