Two Steps to Mastering Bank Turndowns – pt. 2


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

In part 1 of this series, we listed some of the main reasons investors and business owners are denied commercial mortgage financing from banks.  Once you’ve identified why a loan request was rejected, the next step is to hunt for the best non-bank solution.

Step 2: Determine which lender alternative is a realistic fit for the loan

First, you’ll need to determine just how un-bankable your client’s request really is.  For instance, the client’s local bank may have an unusually strict liquidity requirement.  In this case, the solution may simply be to take the request to a competing bank.

But borrowers who are dealing with a recent bankruptcy or who are attempting to refinance a mortgage with less than a year of seasoning may not be able to work with any bank in town.  In these situations, it will be necessary to send the deal to a number of non-bank lenders.

The following options are some of the most common bank alternatives:

1. SBA Loans

While investors are limited to bank-specific programs, small business owners may have the opportunity to apply for a SBA loan through a participating financial institution.  Borrowers benefit from SBA loans because of their low rates and business-friendly terms, while lenders are happy to offer them in part because the U.S. government guarantees a portion of each loan.

Unfortunately, a large portion of prospective borrowers in today’s market don’t qualify for these types of loans either.  Reasons for rejection include:

  1. The structure of the business
  2. Ineligible use for funds
  3. Lack of documentation
  4. Ineligible real estate

A common worry for business owners who do secure SBA financing is the fact that they may not be able to maintain their eligibility when it comes time to refinance.  Since commercial loans feature relatively shorter terms, you’re likely to come across many SBA turndown scenarios that fit this mold.

2. Hard Money/Bridge Loans

If significant credit or documentation issues are keeping your client from securing bank financing, a hard money solution may prove to be the best alternative.  This financing option features fast closings and maximum flexibility, but high interest rates and short terms represent serious drawbacks for credit-worthy borrowers.

3. Non-Bank Commercial Mortgage Alternatives

Borrowers who fail to qualify for bank financing don’t have to settle for high-interest, short-term solutions.  An alternative lender like Silver Hill Funding, LLC fills the gap between banks and hard money options, giving borrowers the opportunity to secure longer-term loans with minimal documentation and faster closings.

If your client falls just outside the banking “box,” this type of lender may provide the most attractive options.  Oftentimes, borrowers who do just qualify for bank financing still elect to partner with a non-bank lender like Silver Hill, either because of documentation concerns or a need for additional flexibility.

Two common examples are the business owner looking to take a large amount of cash out of their existing mortgage or the investor who wants to refinance a recently stabilized multifamily property.  Perhaps these prospective borrowers could secure bank financing if they made some compromises – many choose Silver Hill so they don’t have to.

These borrowers are willing to pay higher rates and fees in order to get more of what they want out of their commercial mortgage.

Helping clients overcome bank turndowns is a major part of any successful originator’s business.  By pinpointing the exact reason for the denial and offering alternative solutions that make the most sense, you can put yourself in a better position to close small-balance commercial mortgage deals.

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.