Back to All Blog Posts

Crafting a Credit Explanation for Commercial Mortgage Borrowers

Commercial Mortgage
Posted on 
July 24, 2018

There are plenty of small business owners out there who need commercial mortgages, but are unable to obtain them from a traditional financing source because of past credit issues. If you choose to work with these borrowers as a commercial mortgage broker, it’s your job to find lenders who will fund these borrowers’ requests. In order to do so, you’ll need to seek out alternative commercial mortgage lenders and prove to them that your borrower’s credit issues are behind them and that they can handle the debt.

Then, you’ll need to provide them with a thorough credit explanation. Here’s the information you’ll need:

Explain your borrower’s past credit issues.

For many small business owners, issues in their credit history aren’t uncommon. While this may keep them from getting a bank loan, there are many lenders who are willing to look past a less-than-stellar credit score as long as the borrower is back on the right track and has a good explanation for their past issues. Make sure to include a letter of explanation with your submission if your borrower has experienced challenges of this nature.

Make sure the letter of explanation patterns the credit report.

Your borrower’s credit explanation needs to match what the lender will be reading on their credit report, and it needs to make sense. Whatever issues your borrower experienced, make sure their story patterns the report with regards to when the problem occurred or was discovered and when recovery took place.

Be prepared to discuss past cash flow issues.

If you’re working with a borrower whose credit issues stemmed from cash flow problems, you need to explain this to your commercial mortgage lender and to prove that the issues have since been resolved. Be sure to relevant financial documents as well as information about what has improved in their business or rental stream.

Remind your borrower to be upfront about challenges they’ve faced.

If your commercial mortgage lender requires a borrower interview, be sure to review your borrower’s credit history with your borrower beforehand. Encourage them to be as thorough as possible when discussing any past problems so that the lender can gain a full picture of their financial situation. If your borrower provides plenty of detail that proves the credit issues are resolved or that they are working to resolve them, they’ll be much more likely to secure a commercial mortgage.

While past credit challenges may keep your borrower from getting a bank loan, there are other financing options. It’s important for brokers to develop partnerships with alternative commercial mortgage lenders and to learn how to craft the best credit explanation for each borrower. Remember, the more information you and your borrower provide, the easier it will be for a lender to evaluate the commercial mortgage request and fund the deal.


You might also be interested in