Why Commercial Mortgage Lenders Don’t Like Small Loans

Many of the most successful and powerful commercial mortgage lenders, as-well-as top commercial mortgage brokers avoid originating small balance loans. It is not easy to find a firm willing to underwrite a commercial mortgage with a loan amount of less than $1,000,000.00. As a borrower in need of a smaller loan, you may feel somewhat insulted by this circumstance, but if you take a moment to see things from the lenders point-of-view you will learn the key to getting your small balance loan through to closing.All the Work 10% of the PayA borrower is entitled to all due respect and a high level of service regardless of the size of the loan being requested. It is only right that every client receive the same time and attention as every other. The small borrower asks the same questions as the large. The paperwork and documentation for a $100,000.00 loan is identical to that of a $1,000,000.00 loan. The only real difference is the number of zeros on the application.As-far-as the lender is concerned, the amount of work and the effort involved in closing a small loan is exactly the same as closing a big one, but the compensation to the firm can be 10 times less! So for the company funding the loan, it’s simply a matter of economics; they can fund 10 loans for a certain amount of income or fund just 1 for the same amount of income. They will, invariably, choose to fund fewer loans with larger balances if they are successful enough to be choosey.What’s a Small Commercial Real Estate Investor to do?Even in this era of skyrocketing real estate values in the commercial sector there are still many, many buildings and building lots selling for less than $1,000,000.00. Knowing that lenders prefer large loans, how can a small investor get a low balance loan file through to close?Small Balance Lending is a NicheSome savvy business people have figured out that there is much less competition for small loans than for the big ones that everyone seems to fight over. Seek out small balance specialists. Sift through all the advertisements and all the search engine results and you will eventually find a lender looking for you just like you are looking for them.Every time you get a lender or broker that tells you “We don’t do loans under a million” just take the time to ask: “Do you know any good lenders who do?” You will get some good leads and if your deal is of high quality you will find someone to fund it.Make it Easy for ThemRemember, the reason a big lender doesn’t want your small balance loan is because they think it’s going to be a-lot of work for a little pay. Turn the equation around on them, make your loan look like easy and they will see a decent payday for a minimal effort.Do some research and have the documentation you know you’ll need readily available and let them know you will be very forthcoming. Don’t just submit an application, sell them your deal. If you have great credit, make sure they know it up-front. If you are putting down a healthy down payment, highlight that fact. If there’s ton’s of equity in your building point it out to them. If they believe your loan will sail through the system they won’t be able to resist originating it.Small commercial loans can be done. A little searching will turn up willing lenders, I promise. And, a little window dressing (as long as it’s honest) on your file will go a long way in getting it accepted.

This entry was posted in Uncategorized and tagged , , , , , , , , , . Bookmark the permalink.