Posted by Funds2Go
8 Reasons Why Commercial Lenders Reject Deals

8 Reasons Why Commercial Lenders Reject Deals

THINKING ABOUT GETTING A MORTGAGE LOAN?

Don’t fall into this

Source: Hannif Highclass c/o Lenders for Growth Inc.
Publish: Funds2Go BLOG: Mortgages, Loans, Financing

There are a lot of well-meaning people attempting to break into commercial real estate for a couple of different reasons:

  • i) they’ve been laid off or down-sized from a job in a somewhat related industry, or
  • ii) they’re graduating up from being a successful investor in single family houses.

Either way, these folks are jumping into commercial real estate as a money finder or are seeking funding for their own deals without a clear understanding of the “rules of the game.” You may find this article a little edgy. Please understand, we are here to help you win.

Our Company, Funds2Go, represents millions in private residential /commercial real estate financing. It’s not that the money isn’t out there—you have to know how to go about accessing  real estate capital in the right way.

Our Associate Partner Lenders are busy folks. There are lots of people knocking on their doors looking for money for a residential /commercial real estate project.  Our lenders are also very accommodating people—when there’s a real deal on the table. Given their druthers, they’d rather make a loan on a clean, well-documented, well-presented file than try to wade through all the peculiarities of “special circumstances.”

If you send us a loan request for review, we can tell you almost immediately if the loan is fundable. And if it’s not, we can tell you the problem areas and what to do to fix them. Here are the top reasons why your deal will be rejected.

1. Send us documents we haven’t asked for.

To begin the loan review process, lenders for growth uses a Commercial Loan Intake Form. If we don’t have this form completed, we can’t review your deal. Why? Because it contains answers to all of the questions our lender is likely to ask initially. It is a snap shot/executive summary/overview of your loan request. Please don’t make us wade through pages of information that are not relevant to the lender. We are busy people too.

2. Leave out key information on a loan application

When we send you a loan application to fill out, fill it out! We even send instructions with our loan application. If you still have a question, call us. You know the old saying, “you only have one chance to make a first impression.” Corollary: “How you do anything is how you do everything.” If you want to be a successful loan client, make a good first impression.

 

3. (If you’re a broker,) trying to “protect” your client

We often get brokers who want to sell us a deal based on what they think are the salient points. Don’t try to sell us the deal. Give us information that we need. Give us access to your client. We will protect your relationship. If your client has a real deal, we will almost certainly be able to help them. We’ve got the funding sources. Don’t hide behind your relationship.

 

4. Ask for an LTV based on “Estimated” or “After Repair” value (especially when buying)

When you buy a commercial property, the price you pay establishes the value. The value determines the LTV. If you are buying a $10 MM property and plan to renovate it and lease it up, at some point in the future, it will be worth more. Today, it isn’t. Don’t try to make it look better than it is. Lenders lend on today’s value. The only exception is construction projects, and then the key is LTC (loan to cost.) Don’t inflate your costs. Don’t inflate your value. Be realistic.

Frustrated Clients

Frustrated Clients

5. Sending the same deal to multiple lenders/brokers at the same time

Private lending is a small world. We’ve had situations where a broker worked hard to get a loan package together, brought us the loan package, we reviewed the loan package and took it to our lender only to find out that the lender had already seen the deal from another source. You may be looking to shave an eight of a point off the interest rate, but honestly, is the desire to save a little money worth risking the chance of never getting your deal funded? Think about it. Private lending is a relationship based business. Build relationships and respect them!

 

6. Having completely unrealistic expectations / thinking you are in control

rejection20701Another “pet peeve” is borrowers who think they can control the deal. I cannot count the number of times I have been asked if I can get my lender to “bend the rules” in some way. Lenders actually will bend the rules in some instances, if the deal is really solid and the variance makes sense, but a lot of time, it doesn’t. For example, I had a borrower who turned down a really good loan offer because he wanted a 10 year term and was offered 5. He had no real reason for the 10-year term, was in a niche category which only one lender happens to fill, and the program they have only offers a 5-year term. We wish him the best!

 

7. Categorically refusing to pay “up-front” fees.

We get a lot of would-be borrowers who have been burnt in the past and now they categorically refuse to pay any fees before closing. This is highly unrealistic. In today’s market environment, all lenders charge up-front fees, including commercial banks. These can be legal fees, appraisal costs, feasibility studies, environmental reports, etc. Many of our private lenders also charge “commitment fees” which helps them weed out the non-serious borrowers. If you have built a solid relationship and trust yourself to make good decisions, there should be no problem paying fees up front, especially when they are refundable if the lender fails to perform.

 

8. Refusing to reveal credit scores and/or personal financial information.

Finally, you need to present a credible profile of yourself as a prospective borrower. While commercial loans are not based on credit scores, lenders like to know who they are working with. They will look at your credit report and personal financial statement as a way of evaluating your past relationship with money and credit. This is an important factor in determining who they want to do business with. If you are concerned about identity theft, black out or remove your SSN before sending the information. We just want to know your financial profile as part of the overall assessment of risk.

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