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   ARTICLE   |   From Scotsman Guide Residential Edition   |   September 2007

Getting Commercial Loans in Ship Shape

Attention to detail in small-balance commercial loans can help brokers build good standing

Small-balance commercial lending is now built to make everything easier and more efficient than traditional commercial lending. This carries over from loan submissions to closings and more. Thus, many residential brokers are finding success as “hybrid” brokers by offering small-balance commercial loans.

Whether you’re new to commercial loans or already have a diversified product mix, you’ll find that when assembling your commercial loan package, your attention to detail makes a big impact on the transaction. Submitting a complete and accurate package is important in cementing a professional relationship with lenders, building your credibility and closing loans faster.

What you need

Proper presentation of a loan submission not only establishes your standing with lenders at the onset of the process, it also demonstrates your commitment to the transaction. A well-organized, complete loan file with specific section tabs will display a level of professionalism that can differentiate you from other brokers. Your file will be more likely to receive preferential treatment from a lender when compared to disorganized files.

Remember, too, that missing information or incomplete documents within a package can quickly affect your rapport with the lender and delay the process.

Although submission requirements vary by lender, a complete small-balance commercial loan package generally should include the following items.

  • Loan application: The full application must be completed at the submission stage. Omitting and adding information later indicates a lack of control over the borrower and the transaction. Ensure application is accurate and consistent with information in other documents, including the ownership entity, borrower’s income, borrower’s assets, subject property address, property occupancy and income, employment, assets, financing purpose, payoff amounts, terms of the purchase and sales agreement, and credit.

  • Purchase and sales agreement (if applicable): It shouldn’t be expired. If it is, provide an extension addendum that permits sufficient time to secure financing on the transaction. The contract itself also must be complete, with the purchaser name, address, sales price and terms on the sales contract matching those on the loan application. Disclose any concessions granted within the contract.

  • Operating statements and tax returns: At a minimum, include year-to-date operating statements on the subject property plus those from the past two years. In addition, you need two years of tax returns for the individual borrowers or for the property if the borrower is a corporate entity.

  • Interior and exterior photos of the subject property: Photos give your lender a feel for the physical attributes of a property. Be sure the photos in your loan package are actually of the subject property.

  • Property-type-specific documentation: Additional documents could be required for specialty types, such as automotive, hospitality, restaurant, gas-station, mobile home and health-care facilities. Ask your lender or account manager about additional requirements.

  • Rent roll: The rent roll should include all rental information concerning the property' tenants. This includes the name of each tenant, square footage occupied, monthly rental amounts, term of the lease, operating expense escrows and scheduled rent increases.

More about rent roll

If you’re not familiar with a rent roll, ask your lender for a Multi-Tenant Rent Roll and Certification form or something similar. This should be available online or by request. The rent roll includes:

  • Tenant names;
  • Unit numbers;
  • Size of each tenant’s rented space;
  • Lease terms;
  • Rent amounts;
  • Expenses the renters are responsible for paying;
  • Number of bedrooms/bathrooms;
  • Current occupancy status; and
  • Schedule of all tenants in building, documenting occupancy status.

In addition to providing a completed rent roll, brokers must understand how it affect a transaction. For instance, if the start dates of the leases are subsequent to the financing, you have a good indication that the transaction is a construction loan or that the stated occupancy isn’t accurate. This detail will impact the available financing options, as some lenders don’t offer construction loans.

Rents must reflect the market value. Most lenders use market levels for their underwriting guidelines. Properties with below-market rents might need normalization. On the flip side, above-market rents must reflect the true economics of the lease. For example, if rent is listed as $1,000 per month but the market supports a lower monthly amount, most lenders will use the market value.

In cases where rents vary from market values, provide an explanation. Below-market rents often indicate mismanagement or deferred maintenance that must be corrected before an upward adjustment can be made. Conversely, rents that are substantially above-market may point to ghost renters or non-arm’s-length leases.

•  •  •

For more information, ask your account manager or look to online resources that can help you understand each commercial property type and its corresponding documents. Comprehending these details can help solidify your position as a serious commercial broker.



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