Screening Commercial Loan Deals
Commercial lending is a time-consuming profession that can have big pay-offs if it’s done correctly and with savvy. All types of businesses with all types of commercial lending needs turn to commercial loan brokers to assist them in business growth and development, but not all are truly qualified to receive the loan. Screening commercial loans deals is essential to avoid time and resource draining “loans to nowhere.” These simple guidelines are your checklist to ensuring success in your commercial loan brokerage.
The lack of conformity among loan recipients makes the screening process somewhat lengthy and laborious. While tedious, this step is crucial to avoid a lending pitfall. Be sure the underwriting requirements of your lenders are clear and understandable. Take the time to ask questions. If you do this upfront, it will be easier to immediately turn away any nonviable borrowers.
If the borrower meets the preliminary underwriting requirements, you’ll next need to decide if the loan you offer is fundable. Does the borrower have good growth potential? Can the company actually meet the terms of the loan? Take any warning signs seriously. Your brokerage is a direct conduit for economic growth and the vehicle by which lenders make money and borrowers grow their businesses. A deal gone wrong could ruin your valuable relationship with lenders and put your whole brokerage at risk.
Keep in mind that borrowers with perfect lending scenarios are sometimes easier to process than clients that might have some “imperfect scenarios”. Those with imperfect scenarios will definitely go to independent loan brokers for funding attempts. Be prepared to get a lot of marginal borrowers. Just because these aren’t the “cream of the crop” borrowers doesn’t mean they aren’t viable lending opportunities. The trick is being able to review all financial information, as well as the borrower’s “story,” before creating a forecast to accurately predict how the deal can be funded. While a borrower’s financial information is one of the most essential parts in any lending determination, allowing them to tell their story and clarify any blemishes on the financial report is a good way to find a diamond in the rough. Lenders are willing to hear the borrower’s story, and how they plan on overcoming any problems. It is your job as a loan broker to not only showcase the positives in a credit package, but also highlight the negatives, and give an explanation and plan of how your client will overcome their imperfections.
A great way to increase your chances of working with ideal borrowers is to partner with lenders that offer Loan to Value (LTV) and amortization rates that are competitive with the rates of banks. Those that would have traditionally gone to a bank first might consider reaching out to your brokerage if they know they might get better lending rates. With an increase in business, you will have more flexibility in the types of loans and borrowers you work with, and can weed out those “loans to nowhere” more quickly than before. It allows you to be more “choosey” with who you broker loans for and gives you the opportunity to select only the best candidates.
The screening process is the first and most important part of any loan transaction. Done properly, it can strengthen your relationship with your lenders, help increase your personal income, and create a direct flow of capital to a business in need. While protracted and sometimes arduous, it is the difference between a struggling commercial loan brokerage and a sustainable one. Take the time to thoroughly review your customers’ financial records, but also be sure to listen to the backstory of the record and why the loan is needed.