I often hear brokers complain that they have had deals on their desks for months with no closure. The main reason this occurs is because the broker is not educated on commercial loans: where to go, how to structure, and even what information to ask from the borrower. These brokers work in bits and pieces and often waste their time and the client’s time if this deal is not even closeable. If you can review the deal and get answers back to the borrower quickly, it reduces the pressure on you as the broker. If the deal is not doable, you saved yourself time. You even created value in your service if you educate the borrower on why the deal will not work, and then offer structural changes that will make the deal close.
Another key factor I will touch on is speed. Not just for the above reasons but because you are being shopped. If this deal is a good deal, you want to bang out a term sheet as fast as possible to keep this deal in your hands. If you are asked about rate without docs, a broker or lender will not be able to give a real rate; usually just a range and say “it depends.” Get loan summaries completed and ask questions so that you look like the consultant and create value.
There are many documents that need to be reviewed in a deal. A borrower and seller are always slow at getting what is needed. The keys to getting these documents are confidence and firmness. You need to instill urgency with the borrower to get the documents to you in a reasonable amount of time. More than likely there is a contract already in place which means that you are in a time crunch from Day 1. These borrowers have contracts that will put their hefty deposits in jeopardy if the financing is not in place. Without the necessary documents needed to fully review the file’s strengths and weaknesses, you can’t help yourself or the borrower. Brokers must explain the importance of these documents and demand them fast. As you create value in yourself borrowers will begin to trust you and know you are asking for information because it is needed. They should want you to evaluate their deal as a consultant on their side. For example, brokers can review key evidence that points toward the return on investment opportunity or whatever the borrower’s goal may be.
You need to acquire these documents and crunch numbers to see if it is a doable deal. The key is to be firm and confident that “this is what I NEED.” Set a deadline date for the documents. If they need to call their CPA, ask if you can call the CPA. If they complain about forms, you may want to ask “Well do you want seven million dollars, don’t you?” You must be quick, because if there is a hiccup somewhere and/or they do not like the rate and terms, you may have to negotiate. Get the needed docs together; send in a complete package for this deal type to the bank. Get the letter of interest from the bank, put together a term sheet from the letter of interest (LOI) and have your client sign it.
It is best to use a PQ form based on each deal type to help explain the deal to you and your underwriter. When rate comes in to play, DON’T sell rate. Sell payments, solutions, features of the loan and amortizations. Explain the payment to the borrower. A 30 year amortized loan will have a lower payment than what they may have been quoted by someone else. Explain the return on Investment (ROI). This is the best way to show that your deal is better. Look at the deal as a whole. Look at your deal versus the competition and dissect each part from out of pocket due diligence, down payment, monthly payment, PPP, fixed term, and ROI. If you have made the best possible effort on structuring the deal and are educated on where to go, you should have the upper hand. Give the borrower one week to accept the term sheet. If they do not come back in a week, they are moving too slow, shopping you more and more, and they are clearly just not interested. Move on. Note: 9 out of 10 commercial deals will not work - with you or with anyone.
Step 1 - Marketing. Let your past clients, current clients, and friends know that you are now brokering commercial loans. Ensure all your marketing materials and outgoing messages include your new commercial business programs.
Step 2 – Pre-Qualify and Screen. Figure the Debt Service Coverage Ratio (DCSR) and look for any weaknesses in the deal. Tweak these issues or restructure the deal for a lender that allows these types of issues. Think in time frames. Instill urgency with both the lender and the borrower. This will help get the necessary documents quickly and the information needed from your lender quickly. Remember you must think in speed and urgency. Moving swiftly will allow the borrower less time to shop. Get a NCND form signed to protect you from the borrower going around you.
Step 3 - Get a Term Sheet kicked out to the client. Lock in your borrower with an agreement for financial services or Term Sheet. A Term Sheet is best and should include a seven day expiration period. This agreement solidifies that the shopping period is over and you now have a 90 day exclusive. Put the payment on the loan and walk them through the strengths and benefits. Call every two days until the day before the Term Sheet is set to expire.
Following the above three steps will ensure your commercial deals close, as opposed to sitting on your desk for months. These steps will save you and your borrower’s time and in the end will create value in your services.
Shawn Williamson is a Commercial Financing Specialist/Correspondent with a diversified range of partners, providing the expertise required to meet the borrowers needs and/or market demands. You can find more of Shawn's original articles at LoanOfficerConsultant.com.