Be a Solution Provider

Put non-bank features to work for your clients

Stop me if you’ve heard this one before. Your borrower owns a mixed-use building and has a 30-year mortgage with a well-known bank. They consistently made their payments for the past five years, but now they’ve reached the end of the balloon term and it’s time to refinance. This has never been an issue in the past, but now the bank’s lending guidelines have changed and your borrower’s property falls outside their shrinking footprint.

You advise your borrower that other banks in the area have also found various reasons to deny the financing request.  As your borrower presses you for an explanation, all you can do is point out that even successful business owners in today’s market can struggle to secure refinancing if their mortgage no longer fits inside a traditional lender’s box.

The problem

Look, banks do offer low rates and they are a good match for many borrowers. But their rigid programs, governmental regulations and numerous restrictions make life difficult for anyone who requires special consideration.

The Trepp commercial-mortgage research firm reports that small commercial properties in today’s market “are much less attractive to the banks, especially larger banks.” And like the borrower with the upcoming balloon payment, even those small-balance borrowers who originally qualified for a bank loan can face serious trouble when circumstances change.

So what can you do?

We all know that no two commercial deals are alike. The truth is, no two borrowers are alike either. Each one has a different set of needs and it’s your job to find the lender best suited to meet them. You’re always going to want to find the best rate for your borrower, but once you identify their REAL needs, you’ll often find that a non-bank solution provides value that goes beyond a bank’s low rate.

The non-bank alternative

Most borrowers know that non-bank lenders offer higher rates than traditional banks. But if that’s all they know, they’re missing out on a large group of lenders that move faster than banks and evaluate more than just credit history when determining eligibility.

Non-bank lenders, which include Marketplace Lenders, hard money lenders, conduits and life companies, offer permanent, bridge or working capital loans to borrowers who aren’t able or simply choose not to work with banks. With less rigid restrictions, non-bank lenders are able to provide funding for a wider range of borrowers and more solutions for those with special considerations.

When should your borrower consider a non-bank lender?

Let’s say your borrower qualifies for a bank loan with a low interest rate. Why should they consider going the non-bank route and paying a slightly higher rate?

Here are some of the most common issues we hear about from brokers looking to get the most value for their borrower’s buck:

Flexibility

Your borrower filed for bankruptcy 5 years ago but now runs a new and successful small business.

Banks are likely to cite the bankruptcy as evidence that the borrower isn’t credit-worthy and deny the loan.

Non-bank lenders note the bankruptcy but also judge credit-worthiness based on the health of your borrower’s current business and the revenue it generates.

Time

Your borrower needs a loan to take advantage of a short-term investment opportunity on a small commercial property.

Bank loan approval committees can take months to approve a loan and they won’t move faster just because your borrower is in a rush.

Private and hard money lenders specialize in offering bridge loans to borrowers looking for a quick and temporary solution.

Seasoning Requirements

Your borrower purchased an underperforming property 6 months ago and then renovated and repositioned the building. Now your borrower is looking to refinance the property at market value to recapture their equity in the banks.

Most banks will only refinance based on a loan-to-cost basis (acquisition cost plus renovation costs) or they won’t refinance a loan until the borrower has owned the property for a set period of time (often a year or more).

Many non-bank lenders don’t have this requirement and are even willing to work with borrowers who only recently acquired their property.

Ongoing Covenants

Your borrower qualifies for a bank loan but they don’t want to worry about producing annual financial statements, tax returns, credit reports, and other documentation.

Banks require borrowers to maintain a certain cash flow or other financial criteria to keep a loan in good standing.

Some non-bank lenders maintain a “you pay, you stay” philosophy.  As long as your borrower makes payments, they don’t have to worry about anything else regarding their mortgage.

Stated Income Options

Many self-employed individuals and entrepreneurs struggle to provide income verification and other financial documentation.

Banks use credit underwriting guidelines that typically call for detailed income and credit documentation.

Some non-bank lenders offer stated income programs for certain property types that allow credit-worthy borrowers to secure the funding they need.

Fully Amortized Loans

Your borrower plans on keeping a property for a long time and looks to make consistent payments on a 25-30 year schedule.

If your borrower agrees to a balloon mortgage, they will have to refinance or pay the entire loan balance at the end of the term, which is often as little as 5-10 years.

Many non-bank lenders offer fully amortizing loans to give borrowers more control and less to worry about as they make payments.

Rate Locks

Your borrower wants to lock in a favorable interest rate before it’s affected by changes in the economy.

The average rate lock period is 15-45 days.  Since bank loan committees regularly takes 3-4 months to close a commercial mortgage loan, your borrower is likely to lose their favorable rate.

Non-bank lenders are able to move faster and close deals in a shorter period of time.  Your borrower can feel more confident about their 45-day rate lock.

The next time you have a borrower with one of the issues listed above, educate them by explaining how a non-bank lender could be the best fit for their loan.  When you can convince your clients to look beyond rate and see the true value of their lender partner, it will be much easier for you to get your clients exactly what they want.  That’s when you become a true solution provider.