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Explain the transaction's specific details to the lender to ensure that it provides the correct financing offer. If lenders misunderstand the transaction, they often will quote inappropriate loan terms.
These elements of the transaction should be covered in the executive summary:
Loan purpose and loan amount requested;
Purchase price and estimated value;
The borrowers' business plans;
Date by which the loan must close;
The borrowers' intended use of cash-out proceeds;
Length of time property has been owned;
Special circumstances that affect the transaction; and
In a refinance, the current loan balance, due date and terms.
The business plan is critical to allow the lender to provide the proper loan quote. For example, in the case of the purchase of an apartment building, buyers could have several possible business plans. They may plan to run it as a rental property, to convert it into condos or even to raze it to build a shopping center. These different business plans require different forms of financing.
Brokers should do some calculations to ensure that the transaction makes economic sense. For example, check to see that the borrower has enough liquidity to make the down payment and pay closing costs, estimate what the debt service coverage will be, etc. Discuss any issues you uncover with your client and work to resolve them before submitting the request to a lender.
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Although the loan submission must include a lot of information, it need not be lengthy. A good loan submission should be less than 10 pages. The executive summary will typically be one to three pages. Lenders often prefer that all documents be assembled into one Adobe PDF file and e-mailed to them.
The loan submission should not include tax returns, complete credit reports or complete appraisals unless they are needed to support special circumstances. In fact, submitting many extra documents can be detrimental to getting a timely response. Lenders may set lengthy requests aside, dreading the extra effort of sorting through unnecessary documents.
When commercial brokers look at potential loan transactions from a lender's viewpoint, they will likely improve their success rates. Always keep the three-legged stool in balance and you will have a solid response from your lenders.
George C. Unser is the senior underwriter for Sterling Commercial Capital LLC, a nationwide commercial lender that provides multifamily, retail, industrial, office, warehouse and special-purpose loans. He may be contacted at (203) 366-0320 or GUnser@SterlingCommercialCapital.com.
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