Stay in tune with the basics to increase your closing ratio

Tony Vo, vice president of capital relations, The VEC Financial Group

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

Recent statistics show that only one in 20 commercial loan applications actually make it to closing and ultimately get funded. There are many reasons why a lender would reject a loan application, but they shouldn't deter you from moving forward.

All you need to make sure you have a better success rate to getting a loan approved is education and preparation. Understand the basic commercial lending process and what lenders look for in their underwriting analysis of your loan package.

The process

Start by understanding the overall lending process. The following is a general overview:

• Loan application/package submitted: Make sure the loan application is as complete as possible with all the necessary information the lender needs to make a decision on your borrowers' loan.
• Lender underwrites: The lender will review your loan package to evaluate if you meet its underwriting guidelines. Lenders use different guidelines for each property and loan type, so make sure you understand those guidelines before submitting.
• Term sheet/letter of intent (LOI) issued: If the lender approves, it will issue either a term sheet or LOI. This is a formal document to ensure that all parties agree about the terms of the loan.
• Appraisal/third-party reports ordered: Once the borrower accepts the terms, the lender orders an appraisal. The lender uses the appraisal to make sure the subject property has the value to support the loan amount requested. Additionally, third-party reports such as title reports, purchase agreement, sale agreement and insurance information will be ordered and collected. Your lender will let you know specifically what you need to provide for your clients' loan.
• Final loan commitment drawn up: Once all the additional information is collected and analyzed and once all conditions are met, the lender will issue a final loan commitment.
• Loan terms negotiated and reanalyzed: If the appraisal or other third-party documents affect the original terms, the loan terms may need to be adjusted and renegotiated.
• Full loan commitment given: This document outlines the final terms of the loan. It assures the borrowers that the lender is ready to go to closing.
• Closing takes place: The closing documents will be sent to your closing agent, who may be an attorney, a title-company representative or an escrow-company representative. The closing agent will record or file deed transfers, order title insurance, coordinate the exchange of funds and make sure all the paperwork is signed.

Once the lender receives all signed documents, funds will be transferred via cashier's check, draft or electronic wire transfer.

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