SHF Q&A: Top 5 Small-Balance Commercial Mortgage Questions Answered

Good news: the small-balance commercial mortgage industry is finally returning to normal. Better news: because of this encouraging trend, brokers now have more opportunities to grow their commercial business.

But like millennials and avocado toast, whose fates are inevitably entwined, the trick is knowing which lender to partner with to really boost your business. Some scenarios are fit for traditional banks. Others may do well with hard money lenders. But if your borrower wants competitive rates and a dash of flexibility, you may want to consider an alternative lender for these types of deals.

Enter Silver Hill Funding, LLC.

If you’ve worked with us, you may know that our current programs and products have recently gone through major changes and improvements. If you’re new here (hi, hello, and welcome!), we’re thrilled you’re interested and we can’t wait to help get you started on the path to Silver Hill success. Whatever your status with Silver Hill, you likely have questions about our services.

After sifting through broker questions we received during our latest webinar, there were five burning questions brokers had about working with the Silver Hill team. If you’re interested in partnering with us (or just have 3 minutes to spare), keep scrolling to learn more about how our growing offerings give brokers more options and opportunities to close deals for their borrowers.


Question 1: What’s the difference between Bank Statement and Lite Doc Investor?

Silver Hill recently unveiled two new updates—a Lite Doc Investor Program and Bank Statement solution—for non-bankable borrowers who need more flexibility. Although both options offer your clients more opportunities to secure financing, they have slightly different approaches.

For one, each solution is designed for a specific occupant. Our Lite Doc Investor solution is for investment properties only, while our Bank Statement option is only available for Owner-Occupied transactions.


Going Deeper: Bank Statement Program

Our Bank Statement solution offers your clients an alternative option for proving their income. Instead of providing tax returns, the borrower can simply provide bank statements as proof of income.

In other words, our Bank Statement program can be referred to as an “alternative documentation” solution, rather than a “reduced documentation” solution.

This is a major sigh of relief for many small business owners who do not wish to submit tax return documentation. In many cases, business bank statements are a more current and accurate indication of their business’ success.


Going Deeper: Lite Doc Investor Program

Our Lite Doc solution allows investors to forego tax return documentation when applying for a loan. Instead, our teams will review appraisal and property cash-flow to determine whether or not they can repay the mortgage.

We’re currently seeing a great deal of interest in this solution, especially among investors of multifamily (5+ unit) properties.

Both options are available for purchase, refinance, and cash-out scenarios.


Question 2: How many bank statements do we need to provide and how do you calculate the income?

Our bank statement solution requires 12 consecutive months of business bank statements from the business occupying the subject property.

After we receive those documents, Silver Hill’s expert team of underwriters then reviews and determines whether the borrower is fit for funding. We calculate this is by applying 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.


Question 3: What is the maximum YSP available for brokers who partner with Silver Hill?

Brokers who partner with Silver Hill can earn up to four points (2 points in origination, 2 points in yield spread) when closing deals.

We also look to help you by not charging any lender points and simplifying our fee schedule: a $2,000 underwriting fee and $1500 legal documentation prep fee (plus appraisal costs).

This type of fee structure is not common in the commercial industry. In fact, most lenders usually charge a point or two in addition to closing costs, making the whole transaction more expensive for you and your borrower.


Question 4: Has your list of eligible properties changed due to COVID-19?

While Silver Hill still lends on a wide range of commercial real estate, we have removed restaurants/bars and daycare centers from our roster of eligible properties.

There are also a few additional restrictions on retail strip centers, since they may include restaurants as tenants. You can get in touch with your Silver Hill Regional Manager for more specifics.

For reference, our current eligible properties include Multifamily, Mixed-Use, Retail, Office, Warehouse/Self-Storage, Light Industrial, Daycare Center, and 1-4-unit investment properties.


Question 5: I work in residential, but thinking of making the switch to commercial real estate. What’s the main difference between the two?

It’s very common for residential brokers to want to dip their toes in commercial real estate. Who wouldn’t want to expand their business and reach new clients? But before you become a one-stop shop for small business owners and investors, it’s important to note the differences between the two markets.

First: commercial is not a commoditized product. This means that while everyone is looking for the lowest rate for residential loans, CRE brokers are focused on getting the right solution for their client’s specific needs.

Sure you may be interested in competitive pricing, but it’s not all about getting the lowest rates. Loan officers in the commercial space will typically ask their lender partners questions that range from “can you do a cash-out for a non-bankable client?” to “what program can help my client get out of a hard money loan?” It’s all about problem-solving and finding a lender who can get the loan done and provide an effective solution for the borrower.

Another important difference has to do with underwriting. In the residential world, lenders are generally reviewing the borrower’s credit history and ability to repay the loan. Meanwhile, commercial lenders are most interested in the property’s ability to generate the necessary revenue for loan repayment.

The last core differentiator we’ll cover here has to do with the appraisal process. Appraising a residential home that’s located within a neighborhood of similar properties is relatively simple. It’s far more time-consuming (and expensive) to secure an appraisal for a commercial property.

It makes sense: 1 square block in a given town may include apartment buildings, restaurants, offices, and retail centers. This makes it more difficult to review comparable properties when determining property value.

Want to learn more? Feel free to schedule some time to discuss commercial lending with a Silver Hill representative. They can help you create a plan for transitioning your business.


What’s Next?

If you have scenarios that fit these guidelines, make sure to take the next step and contact your Regional Manager today. Connecting with our experts is the quickest way to learn what solution works best for your client. If the deal fits, you can feel confident that our teams will secure a speedy closing.