Commercial Loan Brokers – How to Not Succeed

We get roughly 5 calls a day from commercial loan brokers. Most of these calls are a complete waste of time for us as the broker has little or no control of the file and has not seen a single documentation on the deal. They have no idea if it’s really doable or not. The broker is almost always trying to get an idea if the loan is fundable, what the restrictions are and of course what the rates and fees would be on the proposed loan.

The conversation is normally the same. After the commercial loan broker fires off their initial question I ask something like “what’s the NOI?” or “how has the gross income trends been over the last 3 years?” after an awkward silence I ask “have you seen the borrowers tax returns?” The answer is almost always no. At that point it’s clear to me that they have and I have a very small chance of closing that loan.

As a commercial loan broker myself I understand the “rub”. Borrowers don’t want to give up their info/documentation and or invest time with a broker unless that get solid, quick answers. In addition many borrowers are simply fishing for information and are really “using” the commercial broker as a “free consultant”. Not to sound too cynical but I really believe that.

Brokers don’t want to let the deal slip through their fingers and start working on the file. The hope is that they’ll call the borrower back, with some quotes or potential loan structure and at that point the borrower will feel comfortable with them, and then send in their tax returns. Of course this is the wrong way to broker commercial loans and will eat at the broker’s time, energy and cash.

Somehow or someway the commercial broker has to convince the borrower that they know what they are doing and that they need documentation now – not later. All quotes structures etc are for the most part meaningless if you don’t really understand what you are working with.

I’m sure there are many ways to convince the borrower to send in the required paperwork. For us, it’s a matter of knowing the details of the type of loan they are requesting. Simply by asking a lot of questions with the intent of discovering potential deal killers the borrowers gets the feeling that 1. we know what we are doing and 2. That we don’t want to work on the file unless we think we can get it done.

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