How to survive in a shrinking marketplaceErik Leavell Esq.commercial lending
"How do I survive the changes occurring in today's declining
Just about every mortgage broker is pondering this question in
some form or fashion. While the information about current events is
plentiful and the data from government agencies, banks and industry
experts is even more abundant, the bold question left unasked is:
"How do I grow business in today's market?"
A matter of survival
The simple reality is that when market conditions were near perfect
in the residential lending arena, who among us was focused on mere
survival? Answer: no one. Then why should our focus shift to
survival now? It shouldn't! A changing marketplace is the perfect
opportunity to evolve. This is our time to solidify relationships
with our key customers, both clients and referral sources. This is
your time to expand your professional skills to provide your
customers/clients with more services.
Have you considered commercial lending?
Compared to residential lending, the commercial lending sector is a
relatively uncluttered and untapped market. Many mortgage
professionals want to get into commercial lending, but few take the
time to pursue the education or invest in the infrastructure to
make commercial lending a reality. Since there are essentially no
simple how-to procedures and/or a free way to make the transition,
the common conclusion reached by the less assertive mortgage
professional all too often is that commercial is not a viable plan.
How wrong! For the average and tech-savvy mortgage professional,
commercial lending is a viable option that can be easily added to
your current business pipeline.
What intimidates people about commercial
Commercial lending is a different animal, but one that can be
easily understood. To get a commercial loan approved requires a
little more extensive underwriting by the mortgage professional
than what is found in the residential lending sector. The
commercial mortgage professional is typically responsible for
preparing an overall analysis of a business, the property cash
flow, assimilating client information into an expense sheet and
calculating the projected debt service ratio for the property.
Commercial lending also takes time - expect to spend about 10-20
hours on each file (substantially more on the first few files, as
you will still be learning).
Third, commercial lending requires you to invest time in your
lender relationships. Commercial lending is not as
matrix-qualification driven as residential lending, so a solid
relationship can be the difference between either a loan approval
or a loan rejection.
Finally, commercial lending requires the broker to take the data
he compiled and reformat it into a comprehensive loan submission
package. The typical loan package has an income/expense report, a
customized spreadsheet with the property's debt-coverage ratios,
digital pictures from an on-site inspection, a detailed narrative
about the property, a separate narrative about the surrounding
area, and a detailed narrative about the borrowers and their
ability to effectively manage the loan.
A clean, complete loan package gives a degree of credibility to
your proposed loan. Lenders (or banks) will take your request
seriously, devote more time to your file and place your file at a
higher priority because your complete loan package simplifies their
demanding work schedule. In the end, the work on your loan package
translates into a closed loan and the beloved commission.
Why have others failed at commercial
There have been many mortgage professionals that sought to enter
commercial lendingsome maintain a commercial lending service center
and some pull out. If you ask a commercial broker why he had (or
has) problems in the business, you would likely hear that the
problems lie not in getting a client but in how to handle the
client's loan once it lands on your desk.
One of the principal reasons for this mishap is that the typical
new commercial broker spends the start-up money on the wrong
priorities - too much money is spent on new stationery, new phone
lines, new fax lines, new business cards with fancy new logos and
other miscellaneous office equipment and supplies. Unfortunately,
by the time the money is spent on office stuff, there is little, or
likely no, money available for education and support to develop the
first loan proposal.
Picture it: There is a loan on your desk worth anywhere from
$10,000-$50,000 in commissions, and you have no money allocated for
a plan to get that loan closed. No matter how many new office
machines there are, no matter how attractive the logo, no matter
the number of phone lines or the ease with which a lender or client
may reach you - if your commercial loan proposal is not substance
driven, then the loan is destined for failure. In the final
analysis, the office described in this scenario does not have the
supplies and equipment to convince a commercial loan underwriter
that the loan on the desk is worthy of approval.
How can a mortgage professional turn a commercial loan proposal
for several hundred thousand dollars (or even several million
dollars) into a closed loan with a $10,000-$50,000-plus commission?
Partnership and guidance with established professionals. A simple,
harsh reality is that a bank will not complete your proposal - if
the commercial mortgage broker omits crucial information or the
format appears difficult to read, then your file sits unattended
until a rejection letter is ultimately issued by that lender.
Moreover, there are no single source answers such as software
packages to give the inexperienced commercial mortgage broker the
step-by-step insight into completing a respectable loan proposal.
As a result of the limited resources available to commercial
mortgage brokers, the loan submission resembles a patchwork of
guesses and intuitive hunches, which, as you now realize, doom the
However, there is a better way. There is a solid plan available
to help new commercial brokers. Some commercial mortgage
professionals who have worked in all aspects of the commercial
business and recognize the absence of guidance and support for new
commercial brokers see an opportunity to fill that void and, in the
process, help new commercial brokers break into the business.
How can commercial lending work for you?
Commercial lending can be profitable, rewarding, at times
entertaining and add more income to your bottom line. Instead of
blindly entering the commercial arena, work with a professional
organization that helps others to start commercial lending
businesses. More importantly, work with a professional organization
that will provide you with technical support on your first
commercial transaction (or first few transactions if you so
require); it is only by working with experienced, tested
professionals that you will have the confidence and key components
to deliver a strong commercial loan proposal to your lender.
While no organization can guarantee that a loan will get
approved, you can have the benefit of knowing your commercial loan
proposal was professionally completed so that the bankers reviewing
your proposal have a basis to respect its findings and a client
reading your proposal for his project can respect your
One of the easiest and most economically practical options for
new commercial brokers is to utilize the services of a firm that
sets up commercial brokers throughout the country. These companies
act as net branch coordinators - new commercial brokerage
businesses are given a similar framework in which to manage
commercial loans and prepare quality loan submissions. Each office
in this plan is independently owned, operated and managed. Each
office is solely responsible for generating and managing its leads.
There are no shared licenses and no regional supervisor giving
orders. It is merely the framework in which to develop a successful
commercial mortgage business.
Many of the companies that start commercial mortgage businesses
offer a menu-like form of pricing - for X amount of dollars, the
company gets X services, whereas Y amount of dollars gets the
company Y services. The menu-pricing plan allows the new commercial
mortgage broker to invest an amount in the business that is
appropriate for his/her level of business as well as desire to
expand into the commercial field.
At the risk of sounding redundant, the true benefit of pursuing
the net branch commercial concept is that the company will give you
support throughout your first deal or first few deals. One should
keep in mind that the commercial loan support is not unlimited;
rather, the support is typically capped at a mutually agreed upon
number of hours that is largely determined by the class of service
purchased. Hours in excess of the included hours are commonly
billed at an hourly rate.
How long does it take to recoup my money from commercial
Like anything else, the money made in commercial lending depends on
the person. Typically, one to three closed commercial loans will
cover the initial investment in starting a commercial lending
business. If you are unable to close a couple of commercial loans
in a year, then it is fairly clear cut that you are better off
pursuing other interests.
Erik Leavell Esq. is a licensed Florida attorney who has
represented financial institutions, lenders and banks. He recently
became general counsel for NetBranchCommercial.com,
a non-profit company that helps mortgage professionals become
organized in the commercial mortgage arena. He may be reached at [email protected]