February 21st, 2012 5:22 PM by Chuck Green
I have been reminded recently as to how important it is for a client to work with a competent commercial loan broker…..not some of the time, but all of the time. Here are some examples.
During a recent transaction for a single purpose/ single tenant building in the San Diego area, a client discovered the true value of a good broker. They had contacted their long-standing bank, a top-five national bank, and received just a marginal, almost indifferent response to their request to refinance their loan to a lower rate and to receive some cash-out. Once we were involved, we engaged the services of five of our top commercial lenders. We had to reconsider our approach, and re-package the loan to meet the client requirement for cash out, but in the end we had three very attractive offers. Amazingly, one of the three offers was from the same big bank that had originally given the client such an indifferent response. Here is the point of this transaction: Taking your loan to “your bank” will sometimes work, but sometimes it will not. The key is knowing which individual, or which group to contact. Your local branch may not know everything about commercial loans, and chances are very high that commercial loans are not being underwritten at your branch. They literally may not know how to help you without making a number of internal phone calls.
During this same transaction, a bank officer also explained why they like working with brokers. A good commercial loan officer knows the language of commercial underwriting. We know how to analyze and how to package and present a file as well. In fact, it has been confirmed for me many times that a good broker’s work packaging and presentation is so important to commercial lenders that they reflect this in their quotes. If a consumer approaches a bank on his or her own, and the bank officer has to do all of the analysis and packaging, then the consumer will see this in the bank’s offer. The loans will usually be priced at 1.0 – 1.5 points paid by the client. When a broker gets an offer for that same client, the offer price will usually include just .25 to .5 point to the client – in other words the bank discounts the offer to make room for the broker fee….and charges less because the broker is doing so much of the work that the bank officer would have done. In many cases this means that the actual cost of using the broker can be as little as $0.00.
Here is another reason. A client in Southern California has a single tenant investment property in Indiana. He does not have the industry knowledge to know which lender will have the best rates. Furthermore, there is no way for him (or any consumer) to know which banks are lending in the Midwest, because many banks are not. The “rust belt” is particularly difficult to work with…Illinois, Ohio, Pennsylvania, Michigan, Wisconsin and Indiana are still not popular places to lend for many big banks. Chase will not lend there, neither will Citi, Wells, Union Bank or Bank of America. How is a client living in California – or anywhere else – supposed to know where to take his loan? A competent broker will know just which bank does what, and where they lend, loan sizes they like, ratios and LTV and even preferred tenant types - all will all be at a good broker’s disposal.
So put a good broker to work on your next commercial refinance or purchase, and watch what a difference it makes. Your file will be professionally packaged, presented and managed; saving you time and stress. When the offers pour in later on, they will be discounted so that the net cost of using the broker will be minimal. Additionally, you will have the extra benefit of knowing that the right lender (with the best rate) received your loan – because you will likely have several loan offers to compare and consider.