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Thinking Outside the Bank for Small-Balance Commercial Mortgage Borrowers

Commercial Mortgage
Posted on 
May 14, 2015

The Federal Reserve released data this week that commercial mortgages for U.S. banks increased by 8.1 percent year-over-year for the week ending April 24. The growth can be attributed to increased business activity as well as less demand for residential and consumer mortgages. As the demand for commercial mortgages increases, brokers would do well to consider working with borrowers looking for small-balance commercial loans that the banks can’t or won’t finance. Here are some reasons a bank may choose not to lend to these borrowers:

Small loan size:

Most banks deal with larger commercial properties and loan amounts. Because of this, commercial mortgage brokers tend to focus exclusively on larger commercial mortgages because they believe that these are the only profitable types of commercial loans. However, turning away small-balance loans amounts to turning away a good amount of additional income.

Ineligible property type:

The vast majority of banks only want certain commercial property types on their books. However, if you work with a non-conforming commercial lender that accepts many different property types, you can increase your income substantially.

Past credit issues:

Because they are more heavily regulated, banks have much stricter requirements for their borrowers’ credit scores. Non-conforming lenders, though, tend to be story lenders. They’re willing to listen to you and your borrowers and they understand that a borrower is more than just a number. Read more in our previous post about convincing a commercial lender to look past a credit score.

Tax issues:

As a general rule, banks do not lend to borrowers delinquent on their taxes. However, there are small-balance commercial lenders who will lend to borrowers to help them clear up their tax issues.

As more small business owners seek financing, commercial mortgage brokers should take the time to learn why banks won’t finance certain loans and get to know lenders who will. The small-balance commercial mortgage market is underserved and offers brokers many new opportunities. Expanding your product line to include non-conforming, small-balance commercial loans is a great way to increase your business and your income.


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