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Top 5 things a commercial real estate broker should look for in a commercial lender

by Self Published Articles

Partnering with a commercial lender is critical to closing a deal. Lender’s marketing efforts mean nothing if the lender cannot back up their claims. Brokers want to work with lending partners with proven track record whom they can trust with no surprises, access to product options and the ability to close on time.

Here are 5 key things to look for:

  1. Reliable pre-qualifications.  Unlike residential lending, commercial loans can only be pre-qualified as the property is very important in the underwriting.  Approvals are only given after an appraisal is received and reviewed.  It is important to have a lender that can turn around a term sheet/pre-qualification in 24-48 hours after thoroughly reviewing the borrower’s financials.  You also need to be able to trust the lender did enough research before issuing the term sheet, so you don’t have any surprises before closing that could have been prevented.
  2. On-time closings. Turning a loan around requires a certain amount of handholding by the lender with the client. Pulling together all documentation and processing it requires a high level of competence across the institution. A seasoned lender knows where the pitfalls are, and how to avoid them.
  3. Products. Because you have a client with a wide range of needs, you need a lender that has different options for loan products. Aside from the standard Conventional portfolio, rehab, construction, SBA 504, SBA 7a and even USDA programs.  You need a lender that has knowledge of all these products and can think creatively for your client.
  4. Superior customer service. Expectations naturally run high when one professional hands off a client to another. A commercial broker only does a few purchase transactions a year, you want a lender that shares your commitment to providing great service. A knowledgeable lender who takes the time to explain the process of what is needed for a smooth closing. You want a lender that will pick up their phone and always returns calls quickly. You also want a lender you can depend on to communicate proactively by keeping YOU and the client up to date on the progress of their loan.
  5. Transparency. Lastly, you want to work with a lender you can count on. One that won’t fail to disclose an issue as soon as it arises and has an alternative to remedy the situation whenever possible. Trust is very important. When something goes wrong like a closing is delayed or, worse your client’s loan application is declined that the lender alerts you immediately, takes responsibility, and can explain the institutions decision to you and your client. Therefore, you need to find a lender with lending authority, so you are talking with a decision maker.

Overall– Personal experience matters a lot when agents recommend a lender to a client. More than any incentive brought to the table, brokers need to feel confident with who they partner with.

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Paul Long on Banking on Digital Growth with James Robert Lay

by Podcast/Presentations

CLICK HERE TO LISTEN

If you’re part of a financial brand marketing, sales, or leadership team, you know the entire industry is in the midst of exponential change fueled by new technologies. Consumers now make purchase decisions long before they walk into a physical branch location, if they walk into a branch at all, while mobile banks, digital lenders, and fintechs have transformed traditional growth models rooted in legacy broadcast marketing and branch sales strategies. Get ready to gain practical insights, proven ideas, and empowering inspiration as financial brand marketing and sales leaders, along with the leading digital marketing and sales technology firms, share their stories to help you maximize your digital growth potential here on Banking on Digital.

 

Episode 107: Paul Long
When applying for a business or home loan, what is your experience with the process?

Is it straightforward or complicated?

Think of how different the experience could be if there were engaging videos and other learning opportunities to help you feel confident about the agreement you’re trying to make.

When business feels “good enough,” it can lead to a decline in customer experience. Providing new ways to educate customers and make the banking process easier should not only be looked at as advantageous to the success of the bank, but as a reminder that helping the customer is the first priority.

Paul Long, Senior Vice President – Business Banking & SBA Lending, discusses his approach to providing customers with a first-rate digital experience and always giving more than he will ever get back.

Key Insights and Takeaways

4 Pillars of Personal Growth for the Commercial Banker
The 3 Different Kinds of Bankers
The Princess Problem & How to Deal w/ a Surplus of Business
A Proactive VS. Reactive Stance to Business
Investing in Videos and Podcasts w/ the Intention to Educate
Balancing ROI and Content Production
Actionable Advice from Paul to the Listeners

Notable Quotables to Share
“Are we in the business to just make a bunch of money? Or are we in the business to help people.”via Paul Long on the @dgisocial #podcastClick To Tweet “It all starts back with being creative. How can I be different within my brand?” via Paul Long on the @dgisocial #podcastClick To Tweet “Market is not something you do just when you’re slow. It’s something you do all the time.” via Paul Long on the @dgisocial #podcast

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by Podcast/Presentations
Paul Long, South Sound Business Summit (Tacoma, WA)
* Business Owners deserve a Commercial Banker that is a strategic advisor…not just a banker – paultlong.com
Lessons learned from developing strong local partnerships to help each other thrive.
* Paul is famous for his local business leader LinkedIn Connection highlights posts, utilizing the power of social media to shout out local standouts
Social media doesn’t have to always be about you, learn to harness the power of the win-win.
* The 6th Annual South Sound Business Summit, this year the event is remote and 100% FREE – southsoundbusinesssummit.com
What is SSBS and why you don’t want to miss this years value packed event.
South Sound Connection (SSC) presented by The DYOJO Podcast and All American Restoration Services (AARES).
* All American Restoration Services is a general contractor based in Tacoma, WA that provides insurance repairs services for clients throughout the South Sound.
* The DYOJO is a business coaching service based in Tacoma, WA and produces The DYOJO Podcast – helping you shorten your DANG learning curve for professional development.
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How to Make Your Banker Mad

by Self Published Articles

Published October 8, 2020- Updated May, 11 2023

“A happy wife is a happy life” is a very common saying in the world and I am going to add a new one for you business owners out there. “A happy banker is a happy life” (I know it doesn’t rhyme but, go with it)

I have been in the business banking arena for over 22 years and I want to share with you what I have seen over the years that frustrates me and how you can learn from these, so when you go to see your banker they will be happy to do whatever you want.

  • Down payment– One of the biggest things that drives a banker nuts is when people come in to purchase a building, vehicle, equipment etc. and don’t have a down payment. In essence you are telling the banker that you don’t want to take any risk on this purchase and that the banks should take all the risk. Well… it doesn’t work that way. From the banker’s point of view, this is not an attractive deal. Banks want to see 10-25% cash in a transaction, this way you have some skin in the game.

Now don’t get me wrong, there are some financing options out there that can finance 100% of an equipment/vehicle purchase and that is your choice but remember being a highly leveraged company doesn’t make the banker feel warm and fuzzy when you need something from them.

How this benefits you:  It is critical to the long-term success of the business to have positive equity on your balance sheet.  When you finance everything, you are creating a large debt load (what bankers call leverage) not only do you have high monthly payments, but you are not building your balance sheet equity which gives you a higher value when you go to sell your business.

  • “How much will you give me.”- If you want to be escorted out of your banker’s office quickly, go ahead and ask that question.  For example: When applying for a line of credit, the banker will ask you, “How much do you think you need?”.  If you ask, “How much will you give me?”, you are essentially telling the banker that you have no plan, or that you haven’t put much thought into what is an appropriate amount to borrow. To greatly increase your odds of getting what you want, you should have an idea of how much you need, perhaps a budget, monthly cash flow analysis or something that says you thought about it.

There are many ways to calculate how much of a line you need. 20% of gross annual sales, 75% of your average accounts receivable outstanding, 2-3 months payroll just to name a few.

How this benefits you: Knowing exactly how much you need is important, so you don’t over borrower and should make you feel comfortable when that rainy day comes.

  • Using a Line of Credit, the wrong way– Many people don’t realize that there is a correct way to use a line of credit. A line of credit is used for short-term working capital needs of the business. To cover payroll for a few weeks, pay a vendor to take advantage of discounts etc. A line of credit should never be used for long-term assets like equipment purchases.

Here is the rule to keep in mind: If you are going to pay it off in less than a year, then you can take it from your line of credit. If it takes you longer than a year, don’t do it, get a term loan.  Banks want to see your line balance look like a heartbeat.

How this benefits you:  You don’t ever want to be in a position of needing cash and not having enough room on your line to pull from because you spent it all on items that don’t revolve.

  • Not understanding your books– Bankers don’t look for you to be an expert at finances, but we do want to make sure that you have a good accountant, bookkeeper etc. that will keep you on track. As the owner you should be reviewing your profit and loss and balance sheet several times a month. You should know what your gross sales, net profit and net income are at any given time, or at the very least, before you approach your banker to ask for a loan. How would you know the health of your business without knowing this?  And how comfortable would you be loaning a person money if the potential borrower couldn’t, in any mathematical way, explain how they could afford to pay the loan back?

How this benefits you: Knowing where your business stands at all times is good to know if you have a problem in your business. How can you as a business owner fix the problem if you don’t know about it? What if it’s too late to fix it?

  • Not paying yourself– Bankers want to see you pay yourself something. Even if it is as low as $25,000 a year in W-2 wages. We understand that you may pay yourself in distributions or other ways, but make sure you talk with your CPA to make sure that you are maximizing your income and the tax consequences of whatever you choose.

How this benefits you: Having enough W-2 wages will help you when you retire getting proper Social Security and Medicare benefits. You must pay into the system in order to maximize your benefit.

  • Only seeing your banker when you need something (visa-versa)- I love my clients… ok.. some more than others, but it is critical that your banker is someone that you talk with more than when you just need something. If you think you are going to want to buy a building, a competitor or a big piece of equipment in the next 12 months, let us know! We will work with you to make sure you are set up properly for that purchase. Also, make sure that you talk with your CPA about that as well so they can prepare your tax return(s), and you will be ready for that purchase before you ask for the loan. Being prepared in advance increases your chances of getting the loan approved. Remember banks want to see you make money (yes you must pay taxes) and you want to pay the least in taxes. Make sure you find a way to make both sides happy.

How this benefits you: How nice would it be if you go into your banker and tell them that you need something, and you are already pre-approved for what you wanted and the process is smooth and easy. No one likes surprises.

 

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What to Expect in the Commercial Loan Process

by Self Published Articles

Commercial loans are different than residential lending loans. Below is the process and estimated time frame to complete each step. The most important part is when the bank asks for information that you are timely on the response as this is the most time-consuming part of the process.

 

Application Process__________________________________________________Estimated Time: 1 Day

On most commercial/business application the following information is needed. This may not be the complete list but in 99% of cases, this is what is required.

  • Last 3 years Business Tax Returns with (all pages should be included)
    • If you own multiple businesses over 20%, 3 years tax returns will be needed for each.
  • Current year to date profit and loss statement with balance sheet for the previous month.
  • Last 3 years Personal Tax Returns with K-1’s for all guarantors/owners with over 20% or more ownership.
  • Personal Financial Statement for each guarantor/owner with over 20% or more ownership in the business that is applying for the loan.

If Investment Real Estate, all the information above along with:

  • Current Rent Roll
  • Copy of all leases for the property
  • Purchase & Sale Agreement (if applicable)

If Business Acquisition all the information above along with:

  • Last 3 years tax returns of the business that is being purchased
  • Current year to date profit and loss statement with balance sheet for the previous month of the business that is being purchased
  • Asset list with value of each asset
  • Purchase and Sale Agreement

Initial Underwriting_________________________________________________Estimated Time: 2 Days

Once the banker receives this information, they will perform the initial underwriting to make sure that there are no immediate issues and at first site a deal that fits the bank credit culture.

Term Sheet/ Commitment                                                                                                          Estimated Time: 1 Day

Once the bank believes that there is a deal, they will bring to you the terms of the deal. This is your time to ask questions and come to a commitment on the terms to move forward.

(If Applicable) Appraisal/Valuation_________________________________Estimated Time: 2-3 Weeks

If real estate or a business is being purchased with the loan proceeds, an Appraisal or Valuation will need to be conducted. It is important to realize the differences between an appraisal and a valuation.

Commercial Appraisal: The bank will get the information on the property and get bids from 3-4 local appraisers in the area. This process can take 24-48 hours and we will let you know how much the appraisal will be. We choose the lowest cost with the quickest time to completion. In general, these appraisals cost about $2500-$4,000 based on the property type. This appraisal will usually give you the best and highest value for the property. For 99% of all purchase transactions an appraisal would be required.

Residential Appraisal: $850-$1,000

Valuation: A valuation is good for lower valued properties under $500,000 where the bank and the borrower are not concerned with a tight loan to value. Valuations are also used for secondary collateral. Valuations are not done by an appraiser but done by a real estate agent (AKA broker price opinion) these reports take about a week to complete and cost $150-$200 for residential properties and $850- $1,000 for commercial. It is very important to note that these tend to come in lower than expected and values tend to come closer to tax assessed value.

Bank Underwriting_______________________________________________Estimated Time: 1-3 Weeks

When the appraisal /valuation is ordered the banker then gets to work writing up the deal to present for approval. During this time the banker and the underwriter will ask questions about the financials, the property and other parts of the deal.

Also during this time, Title and property insurance is ordered along with Flood and Environmental reports are ordered and received.

Appraisal Review/Final Approval_____________________________________Estimated Time: 1 Week

After the appraisal is received by the bank the banker will review the appraisal and finish writing up the deal which then will present to the approver for final approval. At this time there may be additional questions/requirements. Once the loan is approved a commitment letter is prepared to give to you which gives you our final terms and conditions.

Loan Documents___________________________________________________Estaimted Time :1 Week

Once the loan is approved by the bank and the borrower, the bank will begin working on the loan documents. This process does take about a week as there are a lot of details that go into a commercial/business loan agreement.

Signing___________________________________________________________Estaimted Time: 2 Days

Once the loan documents are received by the lender, they will call you to schedule loan closing. This is done at a branch, title/escrow office or at your business location.

Closing____________________________________________________________Estimated Time: 1 Day

After the loan documents are signed it can take 24-48 hours for the loan to be booked and disbursed based on the type of transaction. At this point, you’re done, Congratulations!

As you can see from this a process for a commercial loan can take anywhere from 45-60 days depending on the complexity of the deal. Please work with your banker to set time frames and allow extra time for things that take longer than expected.  As much as we try for a smooth transaction, the reality is that things can come up and delay.

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Banker Question: If you notify your bank of fraudulent activity, will you be on the hook for it?

by Frequently Asked Questions

Yes— but only if you act quickly. If you lose your debit card or discover your PIN or password has been stolen, say something immediately: Federal regulations limit your liability to a maximum of $50 as long as you notify your bank within two business days. Wait longer, and your liability can jump to $500 or more.

Similarly, if you spy a fraudulent charge on your statement but you were unaware of your information being stolen or lost, call your bank right away. If you don’t notify the bank within 60 days, you could be on the hook for 100 percent of the unauthorized charges.

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Banker Question: Can overdraft protection help you avoid huge fees?

by Frequently Asked Questions

When you open a new checking account, you’re typically given the option of opting in for overdraft protection. But it comes at a steep price.

Suppose there’s only $20 in your checking account, and you try to buy $30 worth of groceries with your debit card. If you have overdraft protection, your bank will cover the $10 difference on your behalf—either by transferring money from another one of your accounts or by opening a line of credit in your name—but charge you a fee, often about $35. If you don’t have overdraft protection, the transaction will be declined, and you won’t owe any fees.

If you have multiple checking accounts or a credit card, overdraft protection is almost certainly a bad deal because you can simply swipe a different card should you accidentally overdraw one account. The only time it might be a nice feature is if you have a true emergency and no other way to access funds.

Bottom line? If you decide overdraft protection is right for you, be sure to keep regular tabs on your account balance.