The commercial corner: Start off right in commercial lending by avoiding common mistakesMike Boggianocommercial lending, lender database, borrower qualifications, marketing strategy
The Mortgage Press is pleased to present "The Commercial
Corner," a monthly column by Mike Boggiano of Silver Hill Financial
LLC dedicated to answering your questions about the commercial
mortgage marketplace. If you have a question that you would like
answered in a future installment of "The Commercial Corner," please
e-mail
[email protected]
When starting something new, knowing what mistakes to avoid can
often be the most valuable advice. Three common mistakes made by
brokers entering the commercial arena are: An inadequate commercial
lender database; insufficient knowledge of the borrower's
objectives; and the lack of a strategy for getting started in
originating commercial loans. The answers to the following related
questions can help position you for success.
How can I develop a viable commercial lender
database?
Commercial lender options range from the local bank on the corner
to private hard money equity lenders. Locating them is as easy as
attending your state's mortgage industry trade shows, reading
industry publications, and searching for commercial lenders online
and in telephone directories. At a minimum, you should have a
stable of lenders that can provide the following financing:
•Full doc borrowers
•Stated-income/stated-asset borrowers
•Small business administration
•Conduit
•Hard money equity lenders
Identifying the lenders is the easy partqualifying them is a bit
more challenging, as it is critical that you align yourself with
lenders that will consistently deliver a high level of customer
service. Remember that word of mouth is still a powerful evaluation
tool. Request references from brokers who have submitted and closed
transactions with the specific lender(s) you are evaluating.
Inquire about overall production from the previous year, year to
date and current year goals. Finally, gauge their reputation in the
broker community relative to ease of use and the training resources
they offer. These are all great indicators regarding a lender's
ability to deliver on your transactions.
Once you have identified your database, learn all you can about
each loan program through your own research or by requesting
specific information. One thing is certain: The more outlets you
can offer your clients, the more of a resource you will become to
them.
How can I gain a clear understanding of my borrower's
objectives?
The more you know, the better the service you will provide to your
customer. Knowledge starts with the initial interviewinquiring
about a borrower's investment strategy and the level of
documentation they can provide is critical in placing the client
with the appropriate lender and program. Sample questions include
but are not limited to:
•What is the expected holding time for this
investment?
•What is the current condition of the property?
•What is the tenant mix of the property?
•What is the occupancy level?
•Does it require rehab?
•Are there internal and external pictures available?
•Is the property owner-occupied or an investment?
•How was the value of the property derived? Is it
supportable?
•What is the balance due on the mortgage?
•What is the history of the mortgage payments?
•Are the most current operating statements and rent roll
available? The past two years of operating statements?
•Are the borrower's current and past two years' tax returns
available?
•Is a credit report available? What is the borrower's credit
score?
•What is the structure of the ownership entity? Individual or
corporate entity?
The answers to these and similar questions should elicit some
insight into your client's goals and objectives. Managing the
client's expectations is crucial in developing long-term
relationships.
How can I develop a strategy for getting started in
originating commercial loans?
One of my favorite quotes is, "If you aim at nothing, you hit it
every time." This is very applicable when undertaking a new
business endeavor. Brokers new to commercial lending are wise to
select a mentor who can show them the ropes of commercial
originations. This person could be another broker (although
typically a costly proposition as there will be a split in
commissions) or a lender that is willing to provide training.
Various programs are also available in the marketplace to help you
gain sufficient knowledge about commercial lending practices.
Equally as important is the step of identifying the markets,
lenders and borrowers you will target and how you will meet their
needs. Your mentor can provide advice with respect to setting goals
in these areas. In addition, you will find value in a commercial
lending firm that offers a comprehensive development program.
Begin with transactions that are a natural extension of your
existing residential business and not too complex. Small-balance
multifamily and/or mixed-use transactions are a great starting
point for the transition into commercial brokering. The key is to
continually upgrade your knowledge by creating and sustaining
momentum through closing deals, which helps you gain the necessary
confidence to move on to more complex transactions and expand into
different lending programs.
Commercial lending is a challenging and rewarding career. By
doing your homework, building relationships and establishing clear
objectives for your business, you will be well positioned to
succeed.
Mike Boggiano is senior vice president, national sales
manager for Silver Hill Financial LLC. He may be reached at (877)
676-1562 or e-mail
[email protected]
