The key to closing more commercial loansBrian L. Peartanalysis, LIBOR ARM, rolling equity line, investment, amortization, credit score The most important part of doing commercial loans is not putting the package together or sending it out to 20 lenders. It happens before that. The most important part is the up-front needs analysis, in which you make sure you have a deal and, most importantly, find out what the customer really needs. But most people never do this part of the loan origination process. The most important question you can ask a commercial client is: "What type of return-on-investment (ROI) are you looking for?" You see, that client will call up and say, "I want to buy such and such. What is your rate?" Most brokers, somewhat out of habit and partially because they are impressed with this client, immediately try to answer this rate question with a rate! However, you can't answer that question, because you don't know what you have until you get their docs. In fact, the rate can be anything from a five percent LIBOR ARM to a 14 percent hard money deal, depending on the needs of the client. The customer who needs to close in two weeks will have to deal with 12 percent hard money, even if he has a credit score of 750. Commercial loans can be broken into various scenarios based on the needs of the client. It may be necessary to get part of the loan fixed and part of it on a rolling equity line. With a commercial loan, you can do that without getting two separate loans. You can get the customer a rate that is fixed now then adjusts, or is adjustable now and becomes fixed. The potential is unlimited because banks are loaning their own money. So ask your commercial customers, "What are your goals?" For most commercial properties, the answer is "investment." Because of that, you must get a figure on their required ROI. If you get them a six percent rate, but it balloons in five years and the amortization is only 15 years, then they may be better off on a seven percent rate with a 30-year amortization. The payment is less, even though the rate is one percent higher. That difference may influence getting the deal bought and hitting the client's ROI goals. Most investors do not figure their ROI on commercial properties, even though that is what they are doing - investing. How can a smart person with money buy a strip mall and never ask for the rent rolls to see what it is he is buying? He could be buying a dog with fleas. However, when he comes to us, we ask for the rent rolls to determine whether we can even lend to him, and you should too. If his credit score is 700 and he has $250,000 to put down on a $1,000,000 purchase, one would think he is strong. But if the property has a negative cash flow, you can't get that deal bought with decent rates. In reality, the customer should not buy it! He will lose money every month unless he has some tenants in his back pocket. A denial in commercial is usually a blessing in disguise for the customer because it keeps him from making a bad mistake. In the future, when someone calls, ask him about the property, goals and ROI; then crunch the numbers. You may be surprised at the results! An up-front needs analysis will move you from a commodity (rate) to a consultant and will build your business as people talk about your knowledge and seek your advice. Screen the deals properly up front, find out their true needs and watch your volume soar! Brian L. Peart is president and the founder of Nexus Financial Group Inc. and the publisher of the Top Producer training course. He may be reached at (866) 355-1244, ext. 2225 or e-mail [email protected]. To request his pre-qualification form as a guide to a proper needs analysis, e-mail [email protected].