There are many reasons why most mortgage brokers avoid Commercial Financing. I hope to change that by helping you to understand it better and that it shouldn’t be all scary. It can be a lot of fun!
Commercial financing is a big unknown to probably 98% of mortgage brokers out there. It is my hope to arm you with enough knowledge to make a shift and change our industry!
I will cover some of the stumbling blocks in this article and how you can prevent disasters from striking. Embrace the challenges of commercial financing and earn your rightful place as the consumer’s best advocate when it comes to representing their best interest.
In war, they say that the best offense is having the best defense. I agree! This is also true in financing. Most issues and challenges could be resolved by taking a defensive approach. What do I mean? Just like war, digging the trenches, checking for holes in tents, making sure there’s enough ammo and food is just as important if not MORE important than point and shoot at the enemy.
Commercial financing is similar. At least that’s how I approach it. It’s not the most fun part (it can be if you make it so) and sometimes you think it is a waste of time or “assume” that everything will fall into it’s rightful place. You do know what the word A-S-S-U-M-E is made up of right? Don’t make an ASS out of U and Me by being complacent.
Follow up with every parties involved throughout the process rather than just the client. Sit and wait will only make you become a de-feathered, sitting duck.
Don’t become a dead duck by following up, following up, and following up!
There are many pitfalls along the ways. I will cover some that could be preventable.
The most important part is to clearly communicate the process and guide every party involved. This will help make the entire process trouble free or relatively trouble free.
Similar to babysitting, it may be tedious and sometimes overlooked but these very minor issues can become a big problem if it is encountered near the end stage of financing. For example:
confirming appointments for client and appraiser; ask client if their tenant/seller’s tenant has been notified beforehand (not being allowed onto premise will defeat appraiser’s job) so that nothing gets delayed. Commercial appraisers are not always available and they are in short supply when you need them most (rush jobs)! These appraisals will eat up most of the time allowed on a purchase contract (2-3 weeks on average).
corporate holdings purchase/financing, always confirm if seller has a fully complete minute book. Corporations purchased “online” do not have a complete minute book that most lenders require. Minute book will have more than just the articles of incorporation. It will also have notice of directors/consents to act, central securities register, bylaws, minutes, share certificates, financials, annual reports etc. Some lenders will not advance funds if a minute book is incomplete.
One of the MOST overlooked part is… you guessed it: FOLLOW-UP! The most important part is the follow-up process! If you don’t call and they’re concerned or have concerns, how would you know?
Follow-up with clients:
to reiterate the process (even if you have NO news for them), they need to know what happens next (in-branch signing, property insurance purchase, tax registration if applicable etc.)
about business-side requirements? Ie. Business registration (license, incorporations, taxes and insurance needs) Are they achieved yet?
regarding in branch appointments have been set up or confirmed with both parties (tag along with client?)
to confirm with lenders and client who is the lawyer for conveyance (tip: do not use notary on commercial deals)
to confirm with lawyer that 100% of all documents have been received (including broker agreement/letter of direction – or you don’t get paid)
to confirm with both lawyers (bank lawyers and client side) that all legal requirements have been met or can be met
You know what they say:
Potential preventable disasters:
keep an eye on the completion date and use a checklist or task-list to keep you on track. Use timed/scheduler to assist you if you don’t have a whiteboard (www.Trello.com is very useful for me). Move tasks & re-prioritize daily.
real estate feature sheet (aka MLS/ICX) notes derogatory information (is. Fixer upper, needs TLC or any other negatively biased description or opinions); ask the listing agent to remove it off of their listing (appraisers will note them if that is truly the case rather than a market ploy to target developers/bargain hunters). These are more prone to be on residential properties than commercial but don’t play it safe…
if property is in less than fair condition, have details of remediation as well as estimates for cost of remediation (client must have access to available funds for that project)
sometimes an appraiser is not willing to offer all 3 comparisons (cost, replacement and economic); all lenders will want all 3 in the appraisal but when a property is very old they may not feel comfortable that there is any economic value left.
[Smart tip: interview 2-3 appraisers before ordering.] Meet them at site and/or take them out for coffee to feel out if they’re willing to help you when some flexibility is required (ie. rushed appraisals without rush fees, not including opinionated statements in the report etc)
no signs of contaminated soil but environmental report from appraiser is recommending to have stage 2 completed! Which appraisal company have a reputation to always recommend stage 2 which is time consuming and highly expensive than stage 1; basically which appraisers to avoid. [smart tip: ask the lender who they prefer then call and do soft interview, explain the site, age and location then ask them “what are your thoughts”? ]
tied selling is illegal but some CAM’s (Commercial Account Manager) push too hard during in-branch signing which may upset clients or at least rattles them into thinking it is conditional of the loan therefore putting your integrity into question because of your recommendation of that lender.
[Smart tip: attend with client for in-branch account setup.]
**A side note, help your CAM as they’re also judged on their ability to cross sell products and in certain circumstances may benefit your client. An obvious example is asking them to offer credit card or additional credit ( overdraft or LOC) may be useful. A not so obvious one is purchasing last to survive life insurance for each partner (very helpful as part of succession planning strategy, read more about that in this article <click here>)
additional requirements at the 11th hour may kill the deal; [smart tip: always have plan B available and if your gut feeling is not giving you 100% confidence, you definitely need to have plan B and C as well.]
ask the CAM: other than these conditions; base on your past experience with similar deals, what are the other potential concerns that the credit adjudicator/credit committee may come back with as far as additional requirements? Find out what it is and take action to mitigate that potential hazard.
Any delay may kill financing. Time is of the essence!
I will be providing a more detailed workshop in the coming weeks on various aspects of Commercial Financing. Learn how YOU can be MORE than just a residential mortgage broker!
I believe in abundance and giving. Please feel free to share any of my articles to your friends and family or anyone that could benefit from what I have written. Please leave feedback as I enjoy reading your replies as much as I write these articles. Thank you for taking the time to read my words, I appreciate you.
Sua Truong helps alleviate stress for his clients throughout the challenging process of financing their property so that they can enjoy their life and focus on their family or their business. His integrity is the cornerstone of what he does and why he has been so successful in such a short period of time as a mortgage broker. In just under 5 years, he has become the #1 Mortgage Broker in his community. He currently trains entrepreneurs and other mortgage brokers how to stand out and be outstanding. This way anyone can become the #1 Go-To Expert in their community.
Most people have a HELOC that may be causing them to lose opportunities, costing them time or money and are oblivious to it. So, you have a house with equity and you want to access that equity. The best thing…Read More