THE COMMERCIAL LOAN PROCESS

I'm asked all the time from my students how to start the loan process on a commercial loan, so I thought I would post the basics are to start a commercial loan.

In the initial contact with the client your job is to get as much information as possible as soon as possible, use technology as much as possible. If you can have a client fill out a loan application or get an executive summary over to you before the initial conversation that is best.

The Client Interview

You need to evaluate the borrow by asking these questions, if they can’t answer them or refuse to because they want to know first what you can offer them, then you need to let them know that you may not be the right choice for them because you do a complete evaluation upfront so that you can give the an honest answer.

Step 1

Ask:

What experience do they have shopping for a commercial loan (basically you want to find out if they are a shopper and this loan has been on 50 desks)

What’s their expectations on time to fund, terms and such (if they want to fund in a week and want a 6% rate then move on and don’t waste you time)

What is the desired results, similar to above but you are know looking for real results.

Have they been previously turn down? If so where, by whom, how many, and how long have they been working on this project? A turn down is not a bad thing as long as you can get the deal to pencil out and make sense. It just means that they are now tenderized and ready to not argue over rate and terms, or at least give in to a make sense offer.

Try to determine if it is a legitimate deal. Are you dealing with the principle, a broker, a broker chain, or a dreamer? Your goal is to get to the principle and have a direct service agreement with them. You can give referral fees but if you do not have control do not waste your time.

What do they have in reserves for costs, fees, etc.

Again, if they think you are asking too much, remind them that this is your niche and you are the best in the industry. And that these questions are to help make sure the loan can be funded and you do not take on projects that you do not believe will fund, you do not want to waste their time or yours.

Step 2

If you believe the project is viable then let the client know you are willing to proceed and they need to provide in a timely manner the following:

A full application and executive summary

Complete documentation (explained in detail in coming pages)

You will further assess the documentation to determine if you are willing to take on the project completely

Should you accept their project you will then move forward with a service agreement and expected time line

Once You Receive All of The Documentation Proceed as Noted Below:

Step 3

Evaluate the 5 C’s

• Credit. For established businesses, the lender will focus on the company's credit and outstanding accounts. For businesses less than three years old, your personal credit will also be evaluated.
• Cash flow. This includes audited results and detailed future projections. Many lenders require a cash flow that is 1.25 times the total cost of the company's total and expected debt.
• Collateral. Real estate, valuable equipment, or other property can be used as collateral that the lender can seize if you default on the loan. In some cases, contracts for future work can be used to guarantee loans.
• Management. Your management team's ownership experience, tenure with the company, and familiarity with the industry will all affect your chances.
• Capital and equity. This is the total value of your cash on hand, equipment, facilities, and other tangible assets. "Debt-to-equity ratio" is often used as a rule of thumb - lenders will look for situations where your total debt is no more than 3 or 4 times the equity.

Step 4

Analysis of the Loan Parameters, Loan amount, Dollars down, LTV/CLTV, Timeline

Step 5

Knowing Which Lender Will Approve Your Deal

The things that you should never do is shop you loan, make sure you have a lender lined up from you list of already interviewed and researched lenders. “There is no shopping in commercial.”

Join us for our next LIVE Training .... Visit http://commercialtrainers.com/LiveClasses.html

Or for more information call 877-881-5207 x5

CommercialTrainers.com - The World Leader in Commercial Lending Training