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   ARTICLE   |   From Scotsman Guide Residential Edition   |   November 2007

Small-Balance’s Large Impact

Many local businesses need small-balance commercial loans — and you can be the one to offer them

For many residential mortgage professionals, mentioning commercial mortgages sparks big thoughts: big loans for big corporate parks, metroplexes and skyscrapers in big cities with a big — as in time-consuming and complex — loan process, which requires a big investment of a broker’s time and effort.

But there’s another side to commercial mortgages, where the word “big” defines not the size of the challenges but the magnitude of the opportunity and profit potential. This is the world of small-balance commercial mortgages, or loans of less than $5 million. From entrepreneurs to small-business owners, these profitable prospects are available to brokers simply because they are often too overlooked and underserved by traditional lending sources.

Think small

Today’s strong commercial borrower demand isn’t driven solely by big businesses and big commercial deals. Small enterprises also are a vital component of the overall strength of U.S. commercial development, and small-balance commercial financing plays a large role in helping these businesses grow and expand.

A recent Center for Regional Analysis at George Mason University study, “The Contribution of Office, Industrial and Retail Development and Construction on the U.S. Economy,” confirms the sustained vitality that the commercial real estate sector contributes to overall community growth. It creates jobs, generates income and promotes spending, according to the study.

The divide between large, complicated commercial loans and small-balance commercial loans is significant. Small-balance can be more similar to residential transactions than traditional commercial mortgages.

A wide variety of property types are suited for small-balance financing, such as buildings designed for mixed-use, apartment, retail or office space. Multifamily housing, self-storage centers, warehouses, health-care facilities and hotels also fit this category.

For many reasons, businesses such as these frequently can’t or won’t find the capital they need from traditional lenders and money sources. They may be put off by the specific lending criteria, the disclosure of detailed financial records or the countless documents and lengthy reviews that many larger lenders require.

How it works

Brokers who’ve previously only specialized in the residential market should not shy away from getting into the small-balance commercial game. These loans tend to come with larger profits than residential deals in the same geographic area.

Today’s marketplace offers numerous products and processes designed specifically for the small-business borrower or investor. These include programs with no minimum debt-service requirements and uncomplicated stated-income/asset deals. Many lenders offer comprehensive training, which makes it easier for residential brokers to learn how to work with these products.

Small-balance lenders typically work with fewer brokers than larger funding sources. Thus, they often give your deals more attention. Many also provide opportunities for retail marketing materials and assistance with deal structuring.

•  •  •

Small-business owners and commercial-property investors are an important piece of the economy. By offering small-balance commercial lending as an alternative to traditional lenders, you can provide these underserved borrowers with much-needed capital to expand and grow. At the same time, you are expanding your revenue stream and securing your mortgage business for the future — without a big hassle. 


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