Listen to Audio Segment of Brad on Real Estate Revealed Here:
Transcript of Real Estate Revealed Show on AM560 from Sunday, September 19, 2021
“With over $1 billion in commercial loans underwritten, here are some key lessons we have learned about the industry.”
I have been in commercial lending and underwriting for just about 25-years. This month Commercial Lending X is celebrating its 12-year anniversary, so we have been doing commercial loans for a long time. I thought today it would make sense to share some key lessons we have learned about the industry.
In addition to doing lending through Commercial Lending X, we also do some Bank consulting, which primarily includes doing out-sourced underwriting or loan audits for commercial banks.
Through Commercial Lending X we have underwritten over $1 billion in commercial credit and closed close to $600 million in commercial loans, and through our bank consulting side we have reviewed for commercial banks several billion in commercial credit.
Through my career I have underwritten and or reviewed over $6 billion in commercial loans.
It is from this perspective I can share with you the following lessons we have learned:
- Borrowers need to plan accordingly. I cannot tell you how often I find Borrowers waiting until the last minute to start working on a refinance. Right now we are seeing a lot of Borrowers due to competition on purchases making offers with very short due diligence or closing periods. We cannot close commercial real estate loans with a Bank in 30 or sometimes even in 45 days when you consider most Bank’s approval processes and the time it takes to get an appraisal back. Borrowers need to plan for a realistic time-period it will take to get their deals done.
- Quick responses are key to moving with speed. Lender’s often ask for additional paperwork from Borrowers. Many Borrowers put providing that paperwork on the back burner. What they do not understand is often times a lender is not working on their file until they receive all of the paperwork they need, so it can delay things quite a bit when they do not respond quickly. I know it is hard as a business owner to find the time, but it is important when trying to get your loan done.
- Honesty is key to getting your loan done. Lender’s hate nothing more than to find out several weeks into a loan approval process that a client has a past bankruptcy, criminal record, or lawsuit. Lender’s will almost always find out about these things in due diligence. In fact the first thing most underwriters do now is google their borrower’s names. If there are things in your past assume they will come to light and get out in front of it by preparing a letter of explanation and getting together as much documentation as possible to back it up. This can include copies of legal settlements, copies of bankruptcy documents, etc.
- Hire professionals to help you get your loan done. That means having a good attorney and a good accountant and be sure you are partnered with attorneys and accountants that do not stand in your way but work with you to advance your goals. I see many customers try to avoid paying legal costs or additional accounting fees, and what they do not understand it will end up hurting them and costing them more in the end, whether it is in a higher interest rate or additional lender legal costs.
- Go into the loan process with reasonable expectations. Don’t expect to get the best interest rate but also the highest advance rate. If you are looking to refinance a property, don’t go into it expecting a property you bought two years ago for $500,000 to suddenly now be worth $1 million. Be sure your expectation of what you have is reasonable to avoid disappointment later when the property does not appraise out or you cannot secure all of the terms you are looking for.
- This kind of goes back to a few items we already discussed, but I have found “time” kills most deals. The longer a deal sits in underwriting, the more there are delays in closing, the more likely parties on both sides will get frustrated, the more likely the market will change, and the more likely the deal will die. I cannot say it enough, but it is important to focus all resources to get deals done.
- If you are looking to borrow money for your business keep your financial records in good order, and if possible have your accountant prepare your financial statements at least annually and if feasible, quarterly. Lenders look much more favorably on accountant prepared financial statements than they do on Borrower’s internal books.
- Understand that commercial lending is not uniform. Every lender has different policies and different types of deals they focus on and different terms. Rarely are any two loans the same. Two borrowers can approach a lender looking for the same type of financing and both end up with different terms due to personal or business financial risks. When your buddy tells you they got the best deal ever, don’t necessarily expect that lender would give you the same deal. They might, but more often than not there was a reason that lender gave that deal to that client.
- Lastly, things rarely go as expected. Markets change, people take vacations, or things come up during due diligence. The key to moving things forward is to have patience, communicate, and work with all parties involved.
We work hard to cut through all of the noise and help our client’s benefit from the lessons we have already learned through the years. As always, we can be reached at 630-988-4852 or via email at brad@commerciallendingx.com. Thank you and have a great rest of y