As published in Scotsman Guide's Commercial Edition, October 2006.
Many commercial borrowers have a residential mortgage mentality.
They seek a 30-year fixed term, a 6-percent rate and no prepayment penalty, and they request this in the first minute of the initial conversation.
Often, borrowers are clueless about financing. To ensure the potential borrower has realistic expectations, you must set the ground rules. Take control of the sales call from the start. If the borrower takes charge, you risk losing control of the deal.
Knowing and understanding the customers' needs is key to any successful business. There are various types of clientele with dissimilar needs and wants. For example, do they seek a new purchase or a refinance? Do they want a cash out? Do they have a specific need to refinance, such as a balloon that is due soon?
If they seek a cash out, find out their intended use for the money. Often, borrowers want to take out hundreds of thousands of dollars without a plan for using the money. A deal with an undefined need lacks urgency and has a lower chance of closing.
The deal will have more merit if the owners tell you their exact plan for the cash out. Legitimate plans include making improvements to the building, adding a new work crew or purchasing new equipment.
Ask the proper questions upfront to ensure that their needs are addressed and any potential problems are identified. By allowing your borrowers to express themselves, you learn about the deal. This should make the transaction run more smoothly.
Be certain the property will even qualify for the loan. If borrowers are refinancing out of their existing mortgage, ask if there are any lockouts or prepays on the deal. This can be a deal-breaker.
Ask if the subject property has potential environmental issues, such as underground tanks. Consider possible illegal uses for the property, such as a dentist office in the basement of a property zoned strictly for multifamily.
With these questions, you can filter out the unbankable deals in your first 20 minutes with the borrowers, rather than after they've paid for the appraisal.
Demonstrate that you are the financing expert from the onset. Customers must gain confidence in your ability to give them good advice. Tell them your qualifications and how many clients with similar needs you have helped previously.
Go over the various programs that exist for their specific needs. Teach your customers about your programs, and help them choose the one that is right for them.
Most important, make sure they have realistic expectations of what you can offer. For example, few lenders will finance an owner-occupied restaurant with a low credit score without verifying income or assets. And few borrowers will get 100-percent financing on a shopping center, even though they saw an advertisement for it in the paper.
The borrowers should understand that, in some cases, a higher interest rate is warranted. Schooling clients as to why some requests are not feasible will help you gain their trust. You also may gain limitless opportunities for future deals, especially after they contact that other broker and realize that the advertisement for 100-percent financing was designed just to grab their attention.
In addition to informing your borrowers, try to educate their representatives -- including attorneys, accountants and Realtors.
The result of the initial sales call should be that you and your potential clients understand the total scenario. All parties should be aware of all parameters of their specific financial needs.
Michael Zaslav is the vice president of sales for Commercial Loan Consultants, a national commercial-loan wholesale company based in Philadelphia. He provides sales tools specifically designed for residential brokers and people who are unfamiliar with commercial banking. He has helped hundreds of brokers launch into closing commercial deals and making tens of thousands of dollars per month. He can be reached at (215) 322-9865 or firstname.lastname@example.org, or by going to www.clcloans.net.