Top 5 tips for Commercial Mortgages
What do Commercial Mortgage Lenders look for?
Much has been written about the slow flow of lending from banks to businesses. On the high street this is true but the Centralised Commercial lenders are plugging away – so if you are getting knocked back maybe it’s time to face facts and look to yourself or a Specialist Commercial Broker to re-engineer your proposal to make it a more palatable format to improve your chances of success. A start point would be to consider our Top Tips for Commercial Mortgages below.
Below are our Top Tips for Commercial Mortgages
1) Treat the application like applying for a job.
How so? Try to build your own self confidence first. Every lender looks for experience – you might have it in spades – but ask yourself if you are underselling yourself? Start by looking at your curriculum vitae (CV) – take the salient points and compress this into a three short paragraphs which include the length of time you have been active in the field, projects you have undertaken, how they were funded, how you managed to stay in budget and make a profit. This should then be included with your application. Think, the lender has never met you so you need to explain why you are a good bet.
Do you have any references? If you are experienced the chances are you have access to other funding or have used a different bank(s) previously. It could be that the credit crunch has restricted their ability to continue to support you with your funding directly but can they vouch for you? Lender’s underwriters love evidence – it gives them something concrete to show their Lending Credit Committee when they are recommending they should fund your loan.
You are in competition. Lender’s have a finite amount of money to lend. It’s fair to say that Commercial projects might on the face of it look unique but often there are underlying themes such as Office space. So you have to concentrate on the positives – tell them about the ease of the commute – the car parking spaces etc. the lender’s are not mind readers and the details might make them back you over a similar proposal.
Fill in the gaps. I personally think this is major weak point of many Commercial applicants. Read your proposal through and ask questions along the way – use your instinct. If there section that is light on detail or incomplete, work hard to beef it up. To relate it to applying for a job: it is like the interview. If you make a claim or statement the interviewer is likely to lead onto a question – if in an interview situation you go blank – the chances are you will be unsuccessful.
2) Visit the site
As well as looking over the premises in the day time also visit at night to check the security. If someone tells you there are 22 units count them as you go around – it could be there are 20 plus a couple of makeshift areas. As well as the overall value be prepared to answer questions to the lender on the individual unit size and value. And, take a note book with you.
Lender’s do not like facts in the application process to change. It doubles their work and puts their backs up and portrays you as sloppy.
Talk to the tenants. They could be sub letting or let a fundamental fact slip. If you are lazy and inform the lender of the name on the tenancy agreement and it turns out that although the original tenant signed up for ten years but actually left three years ago it demonstrates you have no concept of the project. In your discussions with the tenants find out what their future plans are. It could be they are planning to downsize leaving extra floor space, deciding not to renew, or pushing for a decrease in rent based on their loyalty at the next rent review. All of these are fundamental facts which the lender will trawl over in detail but are also essential for your own well being.
3) Don’t be afraid to be arrogant
Boast of other genuine Offers you have for funding. Lenders are likely to be pliable in some areas – typically rate and fee – rather than credit policy. If negotiating is not your strength, be honest with yourself and consider using a Commercial Mortgage Professional. The Commercial Mortgage Professional might charge a fee but if they gets more favourable terms it could save you a tidy sum overall.
4) Make sure you can demonstrate affordability
This is self explanatory really so I’m not going to dwell on the basics. However, think about the Underwriter. If you have 5 businesses present a summary of the key accountancy figures such as assets, turnover, liabilities, net profit for each of them on one page. One area commercial mortgage applicants can trip over on is VAT. Check to see whether the property is VAT registered, the amount of VAT payable on a transaction can make stamp duty pale into insignificance. On sizeable projects the lender will want to establish where the money is coming from to pay the VAT bill so make sure you factor this into your sums.
5) Other lending parties
It is not uncommon for large projects to include multiple lenders. It is worth establishing the individual lender’s view on this at outset. They might not be willing to enter into an agreement with other lenders involved or indeed with certain lenders. Conversely they might prefer this approach as it will limit their exposure.
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