When
you applied for a loan to buy your home, your loan officer knew within
minutes whether or not your loan would eventually be approved. Was your
down payment large enough? Did your proposed housing expense exceed 25%
of your gross monthly income? Was your credit score high enough? If you
passed all of the ratios, you knew you were going to get the loan. The decision was all math.
Unfortunately commercial real estate finance is far less predictable than home loan finance. In fact, commercial lenders are notorious for leaving commercial borrowers standing at the alter.
The reason why is because most commercial mortgage lenders are
portfolio lenders. In other words, if they make a commercial loan, they
are likely to keep the loan in their portfolio, as opposed to selling
the loan off in the secondary market.
Because
they make portfolio loans, a commercial lender's decision to make a
commercial loan depends on a whole lot more than the results of a few
ratios, such as the loan-to-value ratio, the debt service coverage
ratio, and the loan-to-cost ratio.
The
decision to make a portfolio commercial loan depends on whether the
lender is bullish on the economy. The lender also has to be bullish on
the particular property type, such as office buildings or retail
centers. For example, the lender might feel that office buildings in
your area are over-built. The lender also has to have confidence in the
borrower's competence as a sponsor of this kind of commercial building.
Finally, the commercial lender also has to like the property and the
location.
All of these underwriting decisions are subjective.
A borrower can never be sure how a lender will view all of these
intangible factors. As a result, many commercial borrowers unexpectedly
find that their loans get turned down.
Sometimes
an unexpected turndown can be a disaster. Suppose you have a balloon
payment coming due on your commercial property, and you apply only to
your local bank for a new loan to pay off the balloon. Then, at the
last moment, your bank decides that self-storage space in your town is
overbuilt. Your old loan balloons, and you don't have the money. Yikes!
If the old bank decides to start foreclosure, you will be in serious
trouble. Once your existing loan is in foreclosure, very few banks will
touch you with a 12-foot pole. (If you get in this position, please
send me, George Blackburne, an email I'll use my hard money fund to rescue you.)
What
if you are buying a property and the bank let's you down at the last
moment? You could easily lose a $50,000 purchase deposit! (If you get in this position, please send me, George Blackburne, an email I'll use my hard money fund to rescue you.)
The wise commercial property borrower will therefore never rely on just one commercial lender.
Instead he will apply to a number of commercial lenders at the same
time, so that if one lender flakes out he can quickly shift to the next
one.
You can summit your commercial loan to hundreds of commercial lenders at the same time using C-Loans.com. And C-Loans is free! | 
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