To find the best loan for your clients, follow the right steps with small-balance lenders

Shawn Cardin, senior vice president, national sales manager, Lehman Brothers Small Business Finance

As published in Scotsman Guide's Commercial Edition, May 2007.

With many institutional and private lenders eager for small-balance commercial loans, programs are proliferating. Terms and service are improving, and the market is more transparent with considerable information online. Many mortgage bankers' clients and prospects already know the advantage is on their side, and they look to an experienced broker for help in making the most of it.

To gain experience in the small-balance sector, know how to find the right lender. For efficient comparison-shopping among these kinds of commercial lenders, start by getting as much information as possible about the client and the property. Brokers should be sure to know the answers to the following questions:

• What business are the prospective borrowers in?
• What is the property's intended use?
• Is it a new purchase or a refinancing?
• What is the business motivation for the loan? How does it fit with an overall strategy?
• What is the property price or value?
• What is the legal structure of the business (incorporated, limited-liability company, partnership, etc.)?
• What documentation do the borrowers have (corporate tax returns, Internal Revenue Service Schedule C, personal tax returns, etc.)?

Because each lender has its own standards for loan-size range, property types, programs, terms and rates, this information will help to target the four or five lenders most likely to have interest in your clients. In most cases, brokers should talk to at least that many lenders to get a good range of possibilities. Lenders' criteria can change often, so it's up to brokers to stay in touch and keep up-to-date on their programs.

Most lenders analyze loan-size range and property type initially to screen for the type of loans they want to make. In the small-balance category, the low end of the loan range is usually $100,000, and the high end is $1 million to $1.5 million. Some programs consider loans as large as $5 million.

Lenders' interest in various property types depends on their underwriting abilities and their specialization areas. Underwriting standards for typical small-balance-loan properties -- auto-repair shops, restaurants, day-care centers and hotels, for example -- are vastly different than the underwriting standards for office, industrial and retail operations.

Depending on their business strategies, lenders will change their targeted property types occasionally. If a lender is not underwriting the property type that your clients want to buy, the business-development officer should be able to refer you to another source.

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