After a challenging and unpredictable year (we’re looking at you, 2020), commercial mortgage pros across the country are wondering if the year ahead will be any different. Although we can’t predict the future, we can help you prepare for the growing trends we’re noticing in the small-balance commercial space.
Before Covid-19, brokers and borrowers had more opportunities to close deals on a wide range of properties. The pandemic has brought on more risk and an unpredictable market, leading lenders to change gears and tighten lending requirements that make sense in today’s commercial climate.
The good news is that you too can adapt to help your commercial business grow in 2021. But first, you’ll have to consider 5 resolutions (besides hitting the gym) to help you and your clients generate income this year.
1. Reevaluate Your Lender Spectrum
The first thing you should do is reconsider your internal lender risk spectrum to see who you should partner with for the various types of commercial scenarios you’re seeing now.
On one end you have hard money lenders. These usually offer the most flexible borrower requirements, but carry the highest interest rates. On the other end are traditional banks. These are often appealing to borrowers because of lower interest rates, but they usually have stricter guidelines during the approval process. Occupying the space in between are alternative lenders, which offer a mix of the two: competitive interest rates and more flexible requirements.
But keep in mind, lenders across the spectrum have changed their programs and guidelines in the last year. Deals that may have been a perfect fit for Lender X in 2019 may fall far outside their box in 2021.
Take Silver Hill Funding, LLC for example. We are not currently offering reduced documentation options for prospective borrowers. Perhaps Silver Hill was your first option for these types of deals – for the time being, you will need to find a new home for them.
That’s why it’s a good idea to connect with your lending partners at the beginning of the year to learn about their offerings available today. Having these conversations now can help you calibrate your internal lender spectrum for the rest of the year.
2. Get Up Close and Personal with Underwriting Guidelines
As an originator, you’re likely already familiar with this step of the process. But as the market shifts and lenders call for new and more stringent requirements, you can ensure your client has a smooth lending experience by playing a more active role in the process. This means asking the borrower more questions up front and before submitting a scenario.
The good news is that your lender partners will want to share this type of detailed information with you. That way, their underwriting teams can spend more time approving your loans!
To kick off these conversations, try asking about the factors that influence a lender’s approval decision and their comparative ranking.
If you were to have this discussion with your partner at Silver Hill, you’d learn that DSCR plays a more pronounced role in our underwriting today. Our team is taking a close look at a prospective borrower’s ability to provide consistent, stable, and verifiable income.
Once you get familiar with your lenders’ current guidelines, you’ll be able to more easily qualify the scenarios that come across your desk in 2021.
3. Consider Property Types
State government restrictions designed to combat the spread of COVID-19 have made it very challenging for certain types of brick-and-mortar businesses to generate business. Some property types, like bars and restaurants, have been hit harder than others. This reality has in turn affected commercial lender real estate guidelines.
Traditional lenders are perhaps the most restrictive when considering borrowers and properties, but in today’s climate, alternative lenders are also tightening their parameters. As we head into 2021, it may make sense to schedule calls with your lender partners just so you can discuss property type eligibility.
These conversations should go beyond just eligibility/ineligibility. For instance, a commercial lender in your stable may have specific restrictions regarding the types of businesses within a retail strip center. COVID-related closures may have changed the rules — and that can make a huge difference for your borrower’s approval status.
In the end, these types of hyper-specific conversations will save you time when considering which deals have an opportunity to successfully close.
4. Build Relationships with Lenders
Just because the market is unpredictable doesn’t mean your business has to be. Connecting with different lenders and commercial experts will keep you in the loop about any major program changes that can affect your clients.
Our suggestion? Opt in for any educational resources lenders offer brokers. These tools (webinars and blogs) will not only keep you updated on how the market is doing, but will also give you an inside look at how different lenders are navigating the space today.
Learning all the different solutions available for small-balance commercial loans will give you an advantage with potential new clients and allow you to present the best deals for a wide range of borrowers.
5. Grow Your Digital Footprint
Expanding your social presence isn’t just for Instagram influencers. Mortgage pros can also benefit from a growing digital presence. A broker who has a website and a social media presence has a greater chance of garnering more clients and opportunities, especially in a time when people are working remotely.
Think about the amount of time you would normally spend at tradeshows and conferences. If COVID restrictions limit the number of events you can attend this year, perhaps you can spend some of that time working on your digital connections. If you’re like most mortgage pros, you use LinkedIn to build relationships with colleagues and lenders – perhaps that network can be your priority in 2021
When posting, try to focus less on YOU and more on the services YOU provide for others. And remember – always share your success stories. Think about it: showcasing your past deals will boost confidence in your existing clients and will most likely help attract potential new clients. Not to mention, it will add legitimacy to your online brand.
There you have it—the top 5 resolutions mortgage pros should follow this year. They may not help you reach your fitness goals, but they will help you navigate the small-balance commercial space like a pro in 2021.