The Definitive Guide to Qualifying Small-Balance Commercial Loan Deals

The Definitive Guide to Qualifying Small-Balance Commercial Loan Deals

The Definitive Guide to Qualifying Small-Balance Commercial Loan Deals

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Commercial loan check list

Ask any experienced mortgage originator.

The key to generating more revenue with small-balance commercial mortgages is to develop the ability to analyze a deal and quickly and correctly determine the best lending solution.

Qualifying deals isn’t easy.  Every commercial real estate deal is unique, and many include property or borrower issues that limit the number of available lender options.

But the payoff for helping a borrower get the loan they need – especially if they’ve been turned down by a bank in the past – is huge.  Establishing yourself as a solution provider improves your credibility and opens up far more referral opportunities within your market.

Use the following steps to improve your ability to consistently identify the best lending solution for your commercial mortgage borrowers.

  1. Identify the borrower’s FICO score and credit history

This is one of the first questions a lender’s account manager will ask when discussing your deal.

Past bankruptcies, foreclosures, tax liens, and other issues will make it very difficult to work with a traditional bank.  However, an alternative lending option may be able to overlook an event like a bankruptcy, provided it occurred far enough in the past.

Keep in mind that a lender will likely run their own credit report if the one you provided is more than a few months old.

Acceptable credit score ranges vary from lender to lender.  As an example, Silver Hill Funding’s minimum FICO score is 650.

  1. Learn as much as you can about the commercial property in question

It’s in a commercial lender’s best interest to make their list of eligible property types as readily available as possible.

That’s because an ineligible property type is one of the quickest and easiest ways to disqualify a scenario.

If you regularly work with a small stable of lenders, it may be a smart idea to keep a list of their eligible properties on your desk for easy reference.

But your qualification process shouldn’t stop at the classification of a property.  You should also research the building’s size, occupancy, and stabilization.

The information you gather here can help you quickly disqualify certain lending options.  For instance, if your client’s property has only been stabilized for less than 2 years, they may be limited to more non-traditional solutions.

  1. Look beyond the property itself and learn about its location

Almost more important than the commercial property in question is its location.

You can start your analysis by making sure your potential lenders do business in the property’s state.  Then check the city and county population – if the property is located in a rural area, there will likely be a smaller number of lenders willing to transact.

As an example, Silver Hill does business in counties with 200,000+ residents, though exceptions do occur.

Looking to get a better sense of a property’s location?  Take advantage of Google Earth.

Using this tool, you can get both a street-level look at the building and an aerial view of the surrounding area.  With Google Earth’s help, you’ll quickly be able to tell if you’re dealing with a rural, suburban, or urban property.

  1. Determine the borrower/guarantor’s ownership structure

Is the borrowing entity an individual or a business such as a Limited Liability Company?  Are the guarantors U.S. citizens or foreign nationals?

These are very important questions to ask before you spend too much time discussing a deal with your stable of lenders.  That’s because lenders have very specific guidelines regarding borrower/guarantor ownership structure and are unlikely to make exceptions in this area.

  1. Work with your client to arrive at a primary purpose or motivation for the loan request

This final qualification question sounds basic, but the more detail you can get at this stage, the better chance you have of connecting your client to the best lender option.

The first step is to determine whether your client is in the market for a purchase, a rate/term refinance, or a cash-out refinance.

But that’s only the start.  Consider asking these follow-up questions to get more of the information lenders are likely going to want to know as they review the request.

  • Purchase: Does your client have a valid purchase and sale agreement? If so, when was it signed?  Is there collateral other than the real estate?
  • Rate/Term Refinance: When is the loan’s maturity date? What is your client’s current rate?  The goal here is to determine how much time the borrower has and how likely they are to qualify for a lower rate when they refinance.
  • Cash-Out Refinance: How much cash is your client looking to obtain through this transaction? Are they coming off a bridge or rehab loan?  When was the property first acquired?  Were improvements made to the property?  Is it now fully-occupied?

The answers you get here will help you qualify your commercial scenario. If the borrower’s looking to refinance and the maturity date is far enough away, you can feel comfortable taking your time and evaluating both bank and alternative options.

However, if your client is pressed for time or has a significant cash-out request, you may be better served by working exclusively with non-bank lenders.

If your client is coming off a hard money or bridge loan and looking for a long-term, lower-rate solution, it pays to understand how the commercial lending spectrum works.  Perhaps the borrower has made improvements to the property, but they still possess an average credit score.

In this case, the borrower may be able to secure a lower interest rate on their next loan, even if they still can’t qualify for bank financing. If you’ve built strong relationships with lenders at every point in the spectrum, you’ll have an easier time finding the most attractive option for your client’s unique situation.

 

You’ll certainly think of additional questions to ask during this process, but the 5 listed above should help you qualify a commercial deal as being either a bank or non-bank opportunity.

If you’re looking for a quick way to see how your deal fits Silver Hill’s guidelines, try our Silver Qualifier mortgage calculator.  This free tool allows you to quickly enter in basic deal info and get an instant rate and term estimate.

Simply log in or create your Silver Hill online account to use the calculator today.

Christina Sanchez

Silver Hill Funding

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