You've got a commercial loan request and you're ready to call a lender. What's the best approach to take in contacting commercial lenders and what's the most important information to provide?
In residential lending, we've become accustomed to easy-to-read rate sheets, standardized underwriting procedures and Internet approvals. Commercial lending is far less standardized and has a whole language of its own. You and the commercial lender's representative will generally discuss the tenancy, income and property type before getting into a discussion of the borrower's qualifications. The loan amount and terms your borrower can obtain will vary greatly, depending on the different characteristics of the property.
For your initial contact with the commercial lender, try to have available as much of the following information as possible:
- The sales price or estimated value of the property;
- The loan amount desired;
- The property type, including approximate age of the improvements, square footage, lot size and, in the case of apartment buildings, the number, size and types of apartments, who pays utilities and what the parking arrangements are. In the case of commercial properties, include the tenancy and when leases expire. If the building is occupied by or being purchased by an "owner user" type of business/borrower, try to find out what the same space would rent for on the open market;
- The income and what expenses the owner pays;
- The borrower's credit, overall financial situation and other properties owned. Lenders are interested in how much other property your borrower owns and what, if any, experience your borrower has in managing the type of property being purchased; and
- If possible, try to find out what properties are adjacent to the subject property. This can be helpful in identifying possible environmental concerns (e.g., property next to an auto body paint shop).
With this information, the commercial lender will be able to indicate if the loan request fits its lending criteria, and if so, what other information is required. In many cases, the lender will prefer to drive by the property before any more information is gathered - sometimes before loan terms are even quoted.
One technique that will put you and your loan request on the top of the stack and make you look like a real pro is this ... When you get a serious-looking commercial request, take some digital photographs of the front of the building (and rear, if possible) and a photo of what's on either side of and across the street from the building. Then type up a brief two-page narrative description of the property and your loan request. This doesn't have to be fancy - just a brief written version of how you might describe the property and loan request to another loan officer. If possible, you can even provide complete rent rolls on apartments, information about leases and expiration dates on commercial buildings.
You can then e-mail the narrative description, digital photographs and whatever other information you've gathered to the lender and request a response. In the long run, this saves you and the lender a significant amount of time. Not only will the lender see that you know what you're doing, but you'll also get a faster, more accurate response to your request.
As you work repeatedly with the same lenders, you'll learn what type of information they regularly require to consider a loan request. Building strong relationships with your commercial lenders will be a great help in closing commercial loans. You'll find that many commercial lender representatives have a significant say in the final approval of your loan request.
Joffrey Long is president of Granada Hills, Calif.-based Southwest Bancorp and author of the Department of Real Estate-approved course, "Making Money with Reverse Mortgages." He may be reached at (818) 366-5200 or e-mail [email protected].