As published in Scotsman Guide's Commercial Edition, May 2009.
As short-term adjustable notes come due and as more businesses close their doors because of the current economy, many of your clients will be unable to cover the traditional 1.2 debt-service-coverage ratio. This makes it difficult for current owners to refinance their existing properties or keep them in positive cash flow. Previously, these owners could try to sell, go into foreclosure or take an equity partner to save their interests in the property.
There are alternative sources of income that are available from your existing client base, however. One solution lies in commercial loan modifications.
While brokers can promote loan modification as a new service to existing clients and try to modify the loans with lenders on clients' behalf, partnering with a commercial loan-modification company often is a better choice. Becoming a referral partner of an established commercial loan-modification organization may save brokers time because this organization already has an operational infrastructure in place. Brokers thus have all their resources available to use in their own promotional efforts. These companies also often provide training, documentation and processing services for free to partner brokers.
In addition, some loan-modification companies have licensed attorneys on staff who are experienced to renegotiate these notes on your clients' behalf.
Before partnering, it's first wise to understand loan modifications themselves.
What it takes
Loan modifications often require less documentation and cost less than standard refinances. Typically, borrowers must submit an intake form, current rent roll, year-end financials, six months of business and personal bank statements, and a personal financial statement.
Most reputable companies can review this information and quickly determine if they can help your client before taking on the file. Generally, a broker's involvement in the process is limited to providing the basic application information via fax or e-mail to the loan-modification company. In more-complex transactions, brokers may be required to get additional documentation from clients.
The remainder of brokers' activities include updating their clients on the transaction's progress and waiting for it to close so that the clients receive revised funding terms. When it is complete, brokers receive commission.
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