Blog

Commercial Lending Case Study: What Works Right Now

Understanding a commercial mortgage lender’s rate sheet is only half the battle. To truly get a sense of the types of scenarios a lender can fund, you need to see real-life examples from brokers and borrowers who closely resemble you and your clients.

This is how we want you to help you at Silver Hill Funding, LLC.

Review the deal below and take note of the specific reasons why a transaction like that would make sense for our current commercial lending program.

Maybe you are seeing scenarios like that today. If so, our team would love to hear from you. Look for easy next-step info at the end of this post.

 

First Things First: When is Silver Hill a Strong Fit?

When evaluating small-balance commercial lenders, it often helps to imagine a risk spectrum. On one end you have hard money lenders, which carry the highest rates and are generally the most flexible when it comes to credit guidelines. Occupying the opposite end are traditional banks – while these lenders offer the lowest interest rates, they are typically the most restrictive regarding borrower approval.

From day 1, Silver Hill Funding has always occupied the space between those two endpoints. What’s changed during this global pandemic is that we’ve edged closer to the bank end of the spectrum.

Perhaps the most obvious adjustment is that we do not currently offer light documentation or “no documentation” loans.

Still, there are important differences between a traditional bank or SBA program and a non-bank solution like Silver Hill:

  • We’re still a smart option for a variety of cash-out refinance scenarios
  • While we’ve cut down on eligible property types (no bars or restaurants), we still lend on real estate some traditional lenders won’t touch, like automotive properties
  • Our approvals don’t require any sort of lending committee or drawn-out process

While there are fewer small-balance commercial lenders in the market today, you and your borrowers still have options. The best way to map out a 2021 spectrum in your mind is to submit scenarios to your various partners to see what they feel comfortable with this year.

 

Commercial Closed Loan Example: Multifamily Property in Pitcairn, PA

Let’s take a look at a recent Multifamily transaction – after all, these are some of the most common types of deals a small-balance commercial lender like Silver Hill Funding will close each month.

 

Loan Rundown:

  • Property Type: Multifamily (5+ units)
  • Purpose: Purchase
  • Loan Amount: $331,875
  • Loan-to-Value (LTV): 75%
  • Term: 30-Year Fixed
  • Broker Compensation: $8,297

From those bullets alone, an experienced commercial broker will identify this deal as a prototypical small-balance transaction. While “small-balance” is typically used to describe transactions of up to $5 million, the majority of deals a lender like Silver Hill sees are below $1 million. And, like most lenders in this space, we fund more Multifamily loans than any other eligible property type.

But you may have already known all that. Let’s identify the key factors that made this transaction achievable – this is what matters most in today’s uncertain market.

 

Why This Commercial Loan Fits Today:

Think of this as a checklist you can run through when evaluating your scenarios. If your deal has a great deal in common with the transaction highlighted here, perhaps it will be a strong fit for Silver Hill.

  1. Income:

In this case, the investor was able to provide consistent, stable, and verifiable income. Since Silver Hill does not currently offer alternative documentation solutions, this evidence came in the form of tax returns.

Depending on the types of loans you’ve closed with Silver Hill in the past, this may represent a shift in focus. Today, a key component of a deal that fits our box is a borrower who is comfortable providing tax return documentation.

  1. Credit History:

Of the traditional 5 C’s of commercial lending, “Character” is as important as ever. This borrower’s strong credit history played an important role in Silver Hill’s approval decision.

If you’ve reviewed a Silver Hill rate sheet in the past, you’ve no doubt seen that our pricing matrix is driven in large part by FICO score – the stronger your borrower’s credit, the more attractive the interest rate.

This is still the case in 2021. When determining whether a scenario may be a good fit for Silver Hill, review their credit history and be sure to pay close attention to any forbearance plan your investor or business owner may have for their home loan. At this time, that factor alone will prevent us from approving the financing request.

  1. Reserves:

It’s simple: this borrower’s post-closing liquidity helped our Underwriting team feel confident about approving the loan.

We’ve updated our guidelines to require at least 6 months’ worth of reserves on bank statements, including Principal and Interest payments. This goes for all loans: purchase, cash-out, and rate/term refinance.

This reserve requirement reflects the environment of uncertainty we find ourselves in today.

  1. Property Condition:

Property type and condition have always been key factors for commercial loan approvals. There are just a few key changes to note when reviewing scenarios today.

For one, we have less flexibility when it comes to property-related issues like deferred maintenance. The fact that the Multifamily building highlighted above was in excellent condition greatly impacted the final approval decision.

When reviewing your current scenarios, keep property condition in mind along with general eligibility factors. Silver Hill is simply not able to make exceptions here in 2021.

As a reminder, our current eligible property types include: Multifamily, Mixed-Use, Warehouse/Self-Storage, Light Industrial, Office, Automotive, and Mobile Home Park.

 

Final Takeaways:

It’s easy to focus on what a lender won’t do – it’s really the only way to effectively qualify your scenarios.

But it’s also important to look at how a solution like Silver Hill can help your borrower. In this case study, the borrower took advantage of historically low rates with a 30-year fixed rate loan on a commercial multifamily property. And their broker was able to finish the year with small-balance commercial closing and some additional revenue.

Are you seeing deals like the one we’ve discussed here? If so, you may be able to grow your pipeline with Silver Hill Funding this year.

You’ll never know until you get in contact with our team. So reach out today and see for yourself. Our experts will be happy to show you exactly how you can close more commercial loans in 2021.