Two Steps to Mastering Bank Turndowns – pt. 1

Capture more commercial mortgage business by identifying smart alternative solutions for bank turndowns

Small business owners and investors seek commercial mortgage financing for a wide range of reasons, yet their first stop is typically the same – the local bank.  And in cases where the prospective borrower has strong credit and an unblemished financial history, that stop may well be their last.

Banks typically offer the lowest rates and most attractive terms to those who meet their requirements.  The problem is that many credit-worthy borrowers are unable to do so.

A 2017 Fed small business survey found that 50% of bank loan applicants received less funding than they requested and 20% received nothing at all.  In situations where a business owner fails to qualify for an SBA lending program, one can expect those rates to jump considerably higher.

The takeaway here is that there are many business owners and investors in your territory who have experienced bank turndowns and now feel unable to securing financing on their own.  This is where you can prove your value as a solution provider.

Take this step immediately following a turndown to put you and your client in a position to succeed with a non-bank alternative.

Step 1: Identify the real reason for the bank’s denial

While every commercial mortgage financing request is unique, most bank denials fall into a few common categories:

  • The property falls outside the bank’s footprint
  • The request exceeds the bank’s legal lending limit
  • The bank finds red flags within the borrower’s financials
  • The property in question has seasoning issues
  • The borrower can’t provide needed documentation
  • The bank can’t meet the borrower’s cash-out request
  • The borrower has insufficient liquidity
  • The transaction features LTV or DSCR issues

The first step to identifying the best alternative solution for a bank turndown is to determine exactly why the loan request was rejected in the first place.  Interestingly enough, borrowers are often not going to receive this information by themselves.

A recent Nav small business survey found that of those who are not able to secure bank financing, 23% didn’t have any explanation for their rejection.  Your expertise plays a vital role at this point – you can educate your client and manage expectations as you look for a non-bank lender that is willing to fund the transaction.

Once you know why the loan request was denied, you can begin to hunt for the best possible alternative lending source.

In part 2 of this series on bank turndowns, we’ll cover 3 of the major alternative solutions available and their ability to meet various borrower needs.

Want to discuss your bank turndown opportunities?

If you have a deal in mind right now, feel free to reach out to one of Silver Hill’s regional managers to discuss the particulars.  You can also quickly price the scenario by using our free mortgage payment calculator.

Read part 2 of our series here.