How to Get Lenders Interested in Your Loan
In the previous chapter I discussed why you should shop the mortgage market rather than just going back to an existing lender you’ve already done business with. The advantage of this option is that you have a higher probability of finding better loan terms than financing your property with your existing lender. The disadvantage is that it will take considerably more time and effort on your part.
But, if you’re going to shop the market without the services of a mortgage broker you need to do it the right way. So how do you go about contacting lenders for loan quotes?
I have two important tips to improve your chances of getting the best loan possible. They are: do your homework to find the most competitive lenders available and be sure to sound like a professional over the phone. So let’s discuss these in detail.
- Do your homework to find the most competitive lenders. That’s the obvious first step isn’t it? But how do you find out which lenders are the most competitive for your specific property type? Do you just Google lenders in your local area? Try it. See how that works. Take it from me, it’ll get you nowhere. There are no shortcuts that you can take to find lenders with competitive financing. It isn’t easy but it’s critical that you take whatever time it takes to do a thorough search of the market to find the most competitive lenders. I would start by contacting other commercial real estate professionals (real estate brokers, appraisers, escrow officers, and real estate attorneys) or better yet other owners of commercial real estate who may be able to recommend their lenders to you. While this sounds like a good, sensible approach to finding the right lender, you’d be surprised how few people (even real estate professionals) know where to go for financing. This will take some time so be persistent. Follow all the leads given and, if you’re fortunate, you may discover that one or two lenders appear to be recommended more often than all the others. That’s a clue you may be on the right path.
- Sound professional when talking to lenders over the phone about your loan request or you’re “toast.” Make sure when you call your potential lenders that you can explain your loan request very succinctly and to the point. Let me tell you a little secret: Loan officers can be abrasive over the phone and generally don’t suffer fools gladly.
But in fairness to them, you need to look at the conversation from the loan officer’s perspective. Understand that most loan officers are paid a very modest salary along with a commission based on loan volume. So to them, time is money. They receive hundreds of telephone calls a year and they use the first 60 seconds of the call to determine whether it is worth their time to continue the conversation. If they don’t know you, their inclination will be to get you off the phone as fast as possible with a quick “no.”
So you have to be prepared. You need to have the equivalent of an “elevator speech” prepared in advance that explains in bullet point fashion why your loan proposal is perfect for them to finance. Get to the point quickly in a business-like manner with just the facts, such as:
- Property type
- Proposed loan amount
- Whether this is a refinance or an acquisition
- The property’s Net Operating Income
- Loan to Value based on what you think is a reasonable cap rate
- The property’s Debt Coverage Ratio
- Your net worth, liquidity, and real estate experience, and
- Anything else that gives them a quick understanding of the loan proposal
And you better know how to talk their language – NOI, DCRs, LTVs, cap rates, to name just a few. If you don’t come off professionally over the phone, the conversation will come to an abrupt ending.
If you would like a quick primer on these terms and many others go to my website: www.marshallcf.com. Go to the Terms & Definitions tab and there you’ll see the definitions of over 30 of the most commonly used commercial real estate and financing terms that’ll make you sound like a pro over the phone.
So let’s say you get their attention in your opening pitch. Great! You then go into further details of the deal. Be sure to tell them the “hair” that’s on the deal. There’s almost always some critical issue on every deal, especially in today’s market. Your motto should be “disclose, disclose, disclose.” It’s better to get a quick “no” because you admitted the major issue up front than to surprise them later and lose all trust with the lender. And it’s also easier to sleep at night too. If you’re up front with the loan officer he should be able to tell you in the first couple of minutes of the conversation whether or not he’ll want to receive a loan package from you.
The next chapter will explain how to assemble a preliminary loan package that will maximize your chances of getting the lender’s interest in providing you a loan quote.