Why Small-Balance Commercial Lending Could be Your Next Big Opportunity


Opportunity. When it knocks, are you prepared?

If you are a mortgage broker seeking an opportunity, here’s a knock worth a listen: small-balance commercial real estate loans.

Why? Market conditions are favorable for you to explore the small-balance commercial real estate space today for several reasons: growing investor appetite for small-cap commercial real estate; increase regulation and compliance for banks, rising residential mortgage interest rates on the horizon; and abundant small-commercial loan refinance opportunities with terms or payoffs coming due – just to name a few.

Residential mortgage brokers: if you have not considered diversifying your business with small-commercial loans, here are the top reasons you may want to listen to this opportunity knocking.

Because you can

If you have originated a loan for a multifamily property with two, three or four units, you are already most of the way there. Did you know that multifamily properties with five or more units are considered commercial real estate? So while there may be some differences between residential and commercial mortgages, much of the process and approach is the same with multifamily loans. You may not realize how close you are to originating a commercial loan.

Diversification is smart

Adding a new revenue stream is smart business. When interest rates rise and residential mortgage refis decline, wouldn’t it be nice to have another plan in the works to bring in new or incremental business?

Small commercial is a logical extension of your product offerings that allows you to serve more clients. In addition, you can provide a unique value to referral partners who may not have a resource for their clients’ commercial real estate financing needs. Let them know you have expanded your offering. You can also reach out to new referral sources such as attorneys, commercial Realtors® and insurance agents for potential small-commercial business.

You have leads

One of the best aspects of getting into small-balance commercial aside from the additional revenue is that many of the borrowers who need financing are clients or contacts you already know. Your target borrowers for small-commercial are often the same clients you’ve been working with for years on the residential side – small business owners, entrepreneurs, professionals with their own practice, first-time and even seasoned investors. If you don’t know them, someone in your referral network or sphere of influence likely does.

Potential loan opportunities are not hard to find. Many of them can be found in your own book of business. The REO (real estate owned) section of closed loan files is an easy way to identify clients who own commercial property.

The transition is not difficult

Begin with transactions that are a natural extension of your residential business. Multifamily is typically the best transition into small-commercial lending, simply because the real estate is most similar to residential, it’s a common investment, and properties can be found just about anywhere. Mixed-use commercial real estate is another good choice. Starting with these more “vanilla” property types will help you gain the confidence to transition into more complex deals and expand into a wider variety of lending programs.

Our team has worked with many brokers who have said that small commercial transactions are easier than they would have expected. Often, the only regret is that they would have started sooner.

There’s another saying about opportunity: success is what happens when preparation meets opportunity. You’ve put in the preparation, and now you’ve met the opportunity…could this be the day that begins a new chapter in your professional success?