Sizing up your commercial loan (aka; pre-underwriting) is a MUST if you are in the lending business.Here is an example of a common problem in this field…”Loan agent/broker submits their borrowers/buyers financial package to the lender… obtains the LOI (letter of interest)… has their borrower complete a loan application…collects the 3rd party fees…and later receives a phone call from the bank loan officer telling you the loan won’t get past underwriting or the credit department.”The agent/broker now commences to shop the loan through multiple lenders. The results most probably will come back the same.Should proper vetting or loan pre-qualification have been addressed prior to submission to the lender?Keep in mind that not all buyers will qualify for the financing they need. Get them pre-qualified before
they enter into the purchase transaction.In today’s lending environment, many quality borrowers are being rejected for reasons that may have been overlooked prior to the mortgage meltdown.There are 2 areas to focus on when pre-qualifying your client for a commercial loan…First…The borrower needs to be vetted.Obtain the following documentation from your borrower;* 3 years personal & business tax returns (all pages & schedules)
* Personal financial statement or 1003 form
* 3 months of most recent banking statements
* 3 years of borrowers profit & loss statements (if applicable)
* Year-to-date P&L statement (if applicable)Abstract your client’s net cash flow and liquidity from the tax returns and financial
statements.Second…The property needs to be vetted.Size up the property to ensure the debt coverage ratios are in line;* Do your loan analysis to make sure the NOI (net operating income) will debt service the loan your borrower seeks (if property is income producing).
* Take photos of the property
* Use appropriate interest rates and DCR (debt coverage ratio) when determining how much loan the property’s income will support
* Does your borrower’s net income support the debt (if “owner user” loan)?If you already do your own loan and property analysis, then you should know what to do.For the layperson, if you are confused about what I’ve just described, basic commercial loan training is needed. Establish a rapport with your commercial bank’s loan officer and he/she should be able to carry you along until you become good at this.Submit your first commercial loan to them and you will learn a lot about the processes.