The commercial corner: Overcoming objections in commercial dealsMike BoggianoEducating mortgage borrowers
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].
Many of the questions you had when initially learning about
commercial lending are the same questions your borrowers will have
during the process, particularly if the transaction is their first
experience with commercial lending. Leverage your role as a trusted
advisor to educate buyers about the aspects of lending that they
may not understand. Support your recommendation of the best
financing options with an explanation of why they're the best
overall values for the borrowers' needs. You can prevent objections
up front by setting expectations based on the customers' situations
and proactively addressing the concerns that you predict may arise
with each particular deal. Here are three of the most common
objections for first-time commercial borrowers:
My borrower thinks the rate is too high
The first point to take away here is that selling on rate alone is
dangerous and something that you never want to do. The key is to
sell on value, reinforcing your role as a trusted advisor who
provides the best program to meet your customers' needs.
Nonetheless, rate is a factor in the equation, so be sure that you
are prepared to compare all-in costs of the loan—the only way
to truly compare rates. Look not only for cost savings, but also
for value-added features that sweeten the overall package.
Let's assume that during your evaluation of commercial lending
programs, you already determined the best overall programs to offer
your borrowers, based on flexible features and minimal fees. For
example, certain small-balance lenders have eliminated lender
points, while also providing a break on third-party fees, such as
flood certification, environmental screening/insurance and
appraisals. When evaluating rates with your borrowers, the all-in
cost comparison is essential to providing a complete picture, as
these third-party fees can add up to thousands of dollars in
savings.
In addition, consider loan terms as part of the big picture. For
example, take into account the monthly payment on a 30-year term,
as opposed to a short-term balloon. A 30-year, fully amortizing
loan provides a lower principal and interest payment and, thus,
better cash flow for the borrower in question. Save your customers
the costs and hassle of re-qualifying by avoiding balloons.
Finally, keep in mind that lower rates usually require more
stringent underwriting guidelines to qualify borrowers and
properties. In addition, low rates often come with terms that are
not as favorable. Lenders offer a variety of programs, a few of
which function more like a residential mortgage than a commercial
loan issued by a bank. Some borrowers may be looking for the
easiest transaction to close, rather than the lowest rates. In this
case, flexible debt-to-income underwriting that favors a borrower's
ability to repay the loan rather than the debt-service of the
property may be the best choice, even if the rate is slightly
higher. A smart borrower will recognize the overall value of your
recommendation when presented with all of the facts.
My borrower thinks the appraisal costs too
much
Commercial appraisal reports are much more complex than their
residential counterparts. It's important to explain to borrowers
that commercial appraisers are required to develop an income
approach to value and must conduct market research on appropriate
rent amounts, occupancy, vacancy and rent-loss levels. This can be
particularly costly in a rural area, where sales comparisons are
not readily available. While a commercial appraisal does cost more
than a residential one, you can keep the price down by partnering
with a commercial lender who requires primarily limited appraisals.
Some lenders will even solicit bids for appraisals, which is a big
plus in getting the most qualified professional with a competitive
rate and dependable turnaround time for you and your borrower.
My borrower doesn't understand the commercial lending
process and is expecting a fast turnaround
Prepare your borrower for what to expect in terms of the timeline
as early in the process as possible. Turnaround time varies by
lender, but can be especially lengthy with a traditional commercial
process that involves loan committees—often 60-90 days at
minimum. Again, your selection process is the best place to start.
You and your borrowers will benefit from quicker closings when you
choose a commercial lender with a streamlined process and common
sense underwriting that does not subject borrowers to the whims of
committees. For example, look for a lender that offers
pre-approvals and processing similar to a residential program. A
flexible underwriting approach with parallel processing concurrent
to the appraisal can speed the overall timeline significantly. Some
lenders promise closings in as little as 30-45 days.
Your customers will always have questions, during the lending
process. When it comes to commercial loans, keep in mind that
setting expectations up front with the borrowers is important, but
your first task is to select a lending partner that makes the
commercial process as easy and predictable as possible.
Mike Boggiano is senior vice president, national sales
manager for Silver Hill Financial LLC. He may be reached by phone
at (877) 676-1562 or e-mail
[email protected].
