Fact: Brokers love solutions. It’s what helps them get ahead of the competition in the small-balance commercial mortgage space, but the key to really succeeding is knowing which type of solution makes sense with your different deals—even the non-bankable ones.
As a loan officer, you likely work with a wide range of borrowers. While some of your clients may check all the boxes to successfully (and easily!) qualify for a commercial loan—think high FICO score and able to provide full documentation—this isn’t always the case. More often than not, small business owners and investors don’t have these “strong” borrower characteristics and require a dash of flexibility when trying to secure financing.
This is where you come in.
As a solution provider, you can help these clients find the right program that best fits their needs today. Although 2020 required lenders to be extra strict with guidelines and parameters no matter where they previously fell on the lender spectrum (more on that here), 2021 is shaping up to be a better and brighter year for commercial borrowers.
In other words, don’t fret if you’re in search of a program that fits a certain type of “non-bankable” client. Alternative lenders are now updating their offerings with more flexible options, including bank statement programs. Here we highlight how this alternative solution (now available at Silver Hill Funding, LLC) can help you reach more clients and ultimately, help you close more deals this year.
So let’s start at the beginning…
What is a Bank Statement Program?
A bank statement program is an alternative mortgage solution that allows borrowers to forgo presenting tax returns, pay stubs, W-2s and other employer verification forms. Instead they can simply provide—you guessed it—bank statements as proof of income.
The underwriting process in most conventional mortgages generally requires the lender to verify the applicant’s status and income by reviewing their tax returns. The problem with this method is that underwriters don’t necessarily get a complete picture of the borrower. Perhaps your client is self-employed and has an income that is difficult to document. Or maybe the borrower has a prior bankruptcy in their records, which doesn’t correctly reflect their current financial status. Whatever the case, some borrowers prefer not to provide this documentation.
Keep in mind—this doesn’t mean the borrower can’t keep up with a mortgage. A bank statement solution simply offers your clients an alternative option for proving their income. For many small business owners, this option is more straightforward and offers a clearer look into their current success.
Which Borrowers Benefit from This Solution?
While some borrowers won’t break a sweat if asked to provide full documentation when applying for a loan, other investors may need some wiggle room to successfully secure financing. Below we highlight a few types of borrowers that may be a good fit for a bank statement solution.
- Self-Employed Borrowers
Tax season comes for us all, and the way borrowers report income can seriously affect their chances at qualifying for a commercial loan. While individuals who work under an employer have a collection of pay stubs and receive a W-2 form at the end of the year reflecting their total earned income, self-employed professionals file their taxes differently and don’t have access to these documents.
That’s when a bank statement program is helpful because your client won’t need to provide tax returns to show proof of income. Instead, they can provide bank statements (generally 6 to 12 months) to the lender as income verification.
- Borrowers who struggle to show consistent growth through tax returns
Picture this: A small business owner runs a successful automotive shop and wants to refinance the mortgage on his property to make improvements to his business. The only problem standing between him and the loan is a bankruptcy filed seven years ago that’s tainting his credit history.
Although this borrower currently has a booming business and is credit-worthy, he will likely struggle when looking to secure a refinance because of a) poor credit history and b) insufficient documentation due to his self-employment status.
Working with a non-bank lender that offers reduced documentation solutions like a bank statement program will allow this small business owner to finally secure that mortgage he’s been searching for. And remember – while these solutions offer more opportunities, your client may need to pay a slightly higher interest rate.
- Borrowers who require more flexibility than a bank is willing to provide
Even if your client is able to produce full documentation, they may still prefer to keep the process simple and only provide bank statements when applying for a commercial loan.
Partnering with a non-bank lender for a bank statement program also allows your clients to take advantage of other flexible options. Think less restrictive cash-out refinance options, a wider range of property eligibility (multifamily to automotive properties), and longer loan terms (15 to 30 years).
Silver Hill’s Process
Our process is simple – if your client can’t produce tax return documentation, our teams will instead accept 12 consecutive months of their business bank statements as income verification. Silver Hill’s expert underwriters will then use this information to review and determine whether or not the borrower is fit for our program.
More specifically, we apply an industry standard expense factor to determine the borrower’s net income (the amount of money earned after paid taxes and business-related expenses) and the net cash flow available to cover the business, personal, and subject property debt obligations and debt service coverage.
With this program and process, you can feel confident that your client will receive the right solution for their financing needs.
Now that you have a better idea on how a Bank Statement solution can fit your clients, you can get started on your own deals! Make sure to connect with your Silver Hill Regional Manager today and they will walk you through this solution as well as all of our other commercial and SFR offerings.
New opportunities in the small-balance commercial industry are popping up every day. The trick is knowing how they work and who they serve best. With Silver Hill’s Bank Statement program in your back pocket, you can trust that you will get to help your customers and—the best part—start generating more business.