5 Tips for adding Commercial Lending to your product offerings

When you provide exceptional service to a client, they often come back to you for other needs. It is for this reason that it makes sense for residential brokers to offer a wide array of products. Commercial mortgages are a great add on and with the right partner can be easy to do. If you have self-employed residential customers, they may be perfect candidates for commercial lending programs.

I. Select the right commercial lending partner:

1. Make sure your partner firm is a direct lender. There is nothing worse than turning your client over to another broker and not knowing where the money is coming from.
2. Avoid lenders that require up-front fees. You want a lender to underwrite your borrower’s need or make an offer, before you allow the client to pay any money. This will help you avoid expenses without results.

II. Understand you client’s needs and credit history:

1. Just like a residential deal, credit and income will drive the terms offered. Be prepared for rates and terms that fit your client’s strengths.
2. Know what type of collateral your client has. Do you need a Real Estate loan, an accounts receivable loan or an equipment lease? Making the right collateral evaluation will help you select a commercial lender that can meet your client’s needs.
3. There are all types of programs for small business loans. The SBA offers 2; 7 (a) loans and 504 loans. 7(a) loans must use the proceeds to purchase land or buildings, complete new construction or expand an existing facility. In addition, these loans can be used for the purchase of; machinery, equipment, inventory, FF&E, materials and supplies. 7(a) funds cannot be used for; making any change in business ownership, reimbursement of funds owed to the owner, repayment of delinquent government debt or for any purpose the lender determines is an un-sound business practice. 504 loans are loans that improve, diversify or stabilize a local economy. A loan can also qualify for 504 financing if the business seeking financing is; women-owned, minority-owned, veteran-owned, is a manufacturer, is an exporter, is located in an enterprise zone or meets the defined energy-conservation goal.Remember, these programs are run by the government. If your client has a time sensitive need, these programs may not be your best alternative.
4. Use Hard Money lenders only when they fit. If your client has been turned down by one or several banks, they still have alternatives.  Second tier lenders do not have to be “Hard Money”. Look for commercial lenders with terms that allow flexibility for your client. Short term balloons mean that your client will be back in the market in the near future. This may not be a good thing for them. Look for term lenders that offer long term deals. Lenders that offer both fixed and adjustable rates may be your best choice.

III. Make sure that working on commercial deals does not
interfere with your day-to-day residential business:

1. Ask the commercial lender if you need to process or if they provide that service for you.
2. Ask if the commercial lender protects your fee in their commitment.

IV. Understand your income potential:

1. Look for a commercial lender that offers yield spread. This will allow you to keep closing costs low, while also increasing your ability to earn.
2. Make sure that you are not obligated to cover any application fee or appraisal fee.

V. Check the references of your commercial lender:

1. A bank owned or affiliated lender will give you more protection than an independent.
2. Talk to other brokers in your market to make sure you are dealing with a commercial lender that delivers.
3. Look at the lender’s web site.

These simple steps can help you maximize your earnings potential from your efforts in the commercial arena. Remember, your time is money. You worked hard for your client base and you need to take steps to both support them and protect them.

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