For those of you who are either already operating in the small-balance ($100K-30MM) commercial space, or contemplating entry, there are some things to consider to be successful in this environment.
First, with the meltdown in the sub-prime market and the subsequent slowdown in residential lending overall, there are many lenders who are migrating into this environment to try to capture market share in a more stable arena. There are many challenges that exist for this undertaking, but I am going to focus on the challenge with which I have the most expertise - that of loan closing documentation.
As a commercial lender, you have three basic options: Software solutions, Attorneys, or an in-house solution. Each has its advantages, but each has its significant pitfalls.
Software solutions are familiar to most who are transitioning from residential lending, and many shops are already set up with a software solution. The problem is that commercial deals are usually much more customized, require a lot of 'tweaking.' If your processors or loan officers get into your 'forms' software and start cutting and pasting to create new or modified loan documents, then you are walking that slippery slope of practicing real estate law in your closing department - fine if you have an in-house attorney - not so fine if you don't. Data entry errors are also of very significant concern... Plus, the language in the 'forms' software just isn't that robust. You are really limiting yourself in the event you have a default.
The in-house solution provides more flexibility, but maintaining compliance is an issue, documents become quickly outdated, and typically your volume does not justify maintaining the staffing.
"Just send it to the attorneys to handle" used to be the commercial solution of choice, but those days are gone. The turnaround times are typically not good. In addition, for small balance transactions, the cost of using attorneys prices you out of the competition when going against lenders who are utilizing other solutions. You are facing a much more competitive environment, and every fee that makes its way to the borrower is being considered as deals are shopped.
We can help by giving you the best of each of these solutions while leaving behind the worst. There is a way to enter the market, keep your overhead down, be competitive in your fees, and not put documents of questionable substance in your portfolio. Let us show you how.
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